Pump and dump big rewards cards carefully
Don't play the big-sign-up-bonus game without a plan
Dear Cashing In,
I 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 cards.
Assuming you have that, and one or two long-standing 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 opportunity.
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 long-standing credit cards alone. This is not a good time to close another account.
- 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.
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Published: April 24, 2012
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