Pump and dump big rewards cards carefully
Don't play the big-sign-up-bonus game without a plan
Cathleen McCarthy is a journalist whose articles on travel, commerce and consumer topics have appeared in dozens of publications. She writes "Cashing In," a weekly column about credit card rewards programs, for CreditCards.com
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Dear Cashing In,
always pay off my cards, so I never hold a balance. How would opening a card, say
an airline card, using the introductory rewards and then canceling the card
affect my credit score? Essentially, what's to stop people from abusing
introductory rewards? -- Dave
You didn't mention
your credit score, but I'm assuming it's high enough to qualify for those deals
or you wouldn't be asking. Paying off your cards is a smart idea, but you need
some credit history behind you to get kind of scores needed for those big-bonus
Assuming you have
that, and one or two longstanding and active credit card accounts, taking on a
new credit card long enough to score a big sign-up bonus and then closing it
will not cause major damage. It will nick your FICO score temporarily, but it
probably won't dent it enough to make you a loan risk.
However, canceling four
credit cards in a year might. That probably inhibits some people from seriously
abusing introductory rewards. Some may also want to build loyalty in a
particular loyalty program. Once you dump a card, you've spent that particular
With an airline card,
for example, once you've canceled your account, you may or may not have enough
miles for a round-trip airfare on one particular airline. Either way, those
miles that will begin to expire in 18 months if you don't use them. Pick up a
second card for the sign-up miles, you have another chunk of reward points in a
different program. You can definitely skim some free travel this way, but once
you've blown through your options, you're left without the perks of long-term
loyalty and a hodgepodge of reward points.
In order to guarantee
that cards get serious use before the holder dumps them, credit card issuers
often set up sign-up bonuses so you get them in chunks. The advertisement for
the Chase MileagePlus Explorer card reads "40,000 bonus miles," for example, but the
fine print specifies you get the first 25,000 for first use, another 5,000 for
adding an authorized user within two months and the final 10,000 after charging
$25,000. Cardholders are thus forced to actually use the card in order to
pocket the entire bonus -- and if they've added that authorized user, it's a
little more complicated to dump. If you choose to cancel the card after first
use, you still have enough for the lowest-tier round-trip domestic fare (25,000
miles), but those seats are often challenging to book.
If you decide to "pump and dump" a credit card for its sign-up bonus, make sure you're doing what you can
to protect your credit:
- Meet the terms of the agreement you've
signed. Read the contract carefully.
- Leave your
longstanding credit cards alone. This is not a good time to close another
- Don't get so caught
up in meeting the terms of bonus-earning that you forget to use your other
cards. You need to make a charge now and then to keep a card active.
- Use those rewards
soon. As long as you're making charges with a rewards card, you're probably
keeping your rewards account active. Once you close the account, especially an
airline-affiliated card, the rewards you've earned may start to expire after 18
months. You can keep them active by making a minimal purchase with your points
or miles every now and then, but it's better to have a plan to turn your bonus
into a reward when you term is up. Juggling multiple rewards and loyalty programs can become more hassle than it's worth.
See related: Compare airline rewards cards, 5 easy ways to get more credit card rewards points or miles, Are rewards car sign-up bonuses just for new customers?
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