The nice thing about charging expenses on a credit card is that you can rack up cash back or rewards points that basically put free money in your pocket. But there’s another way you can earn extra points or cash back — snag a welcome offer or sign-up bonus.
Credit card companies offer sign-up bonuses to attract new customers. And usually, all you have to do is spend a certain amount of money within a specific period after opening a new card to get a pile of cash back or extra miles you can redeem for free or discounted travel.
But while credit card welcome offers are great in theory, you need to be careful when chasing them. Here are three mistakes you don’t want to make when going after a credit card bonus.
1. Signing up at the wrong time
The risky thing about credit card welcome offers is that they can lead to extra spending. But you can offset that risk by signing up at a time when you have anticipated expenses that are larger than usual. On the flipside, though, if you sign up at the wrong time, you might lose out on a welcome offer you’re hoping to claim.
Let’s say you’re eligible for a welcome offer that gives you $150 for spending $3,000 on a credit card within three months of opening the account. If you normally only spend $600 a month on a credit card, you’re likely to fall way short of that $3,000 requirement unless you have a big purchase coming up, like new furniture or a vacation.
But if you usually spend $600 a month on a credit card except for the month of December, when you commonly spend $2,000 between holiday gifts and travel, then you’ll want to time your application so December falls within the first three months of opening your new account.
2. Claiming an offer that leads you into debt
If you typically spend $1,000 per month on a credit card, then meeting a $3,000 spending requirement in three months shouldn’t be too difficult. But if you typically spend $600 per month because that’s all you can afford, or $1,800 over three months, then pushing yourself to spend an extra $1,200 in that short a time frame could lead you to debt.
That debt might hurt you in a couple of ways. First, you risk racking up interest on your balance that eats into your sign-up bonus (or, in some cases, it could negate it).
Secondly, carrying a high balance on your credit cards relative to your total spending limit could cause your credit score to drop. Once that happens, it could get harder to get approved to borrow money, or you might end up with a higher interest rate on your next loan.
When a credit card welcome offer lands in your inbox, it’s natural to want to pounce. But sometimes, it pays to hold out for a better deal.
Opening too many credit cards in short order could hurt your credit score. Also, you may get rejected for a card you’d normally qualify for if you’ve recently opened a few other new accounts. So before you jump on a credit card sign-up bonus, shop around and see if there’s a better offer.
You might love the idea of scoring $150 cash back for spending $3,000 within three months of opening a new credit card. But if there’s another card that will give you $250 back for meeting that same spending requirement, then that’s the better deal.
Credit card welcome offers are a great way to pocket extra cash or enjoy bonus rewards points. Just be careful in how you go about capitalizing on them.
