Credit Card Signup Offers: How Many Is Too Many?

When I got my first credit card (which wasn’t that many years ago) I remember the signup bonuses being around $25 or $50. At the time, I thought that was great, but it pales in comparison to what’s being offered these days. Over the past year or so, cash bonuses have been up to 10x higher; as much as $250-500. Meanwhile, the value on travel cards can be even more lucrative.

Too good to be true? Sort of. Like they say, nothing in life is truly free.

When it comes to credit card offers, there is a price to pay. And no, I’m not talking about the upfront spending requirements (but I’ll get to those in a moment). Rather, what I’m referring to is the price you pay with your credit score when you apply for these offers.

How these affect your credit score

Getting a new credit card can affect your score, either for better or for worse. Here are a couple ways the latter can happen:

1. Credit Inquiries
 Every time you apply for credit (whether it’s a card or loan) the creditor will have to pull your credit report. Also known as “credit pulls” for short, these come in two different forms:
   
   • Soft Pull – These happen when you check your own credit. They won’t ever affect your score.
     
   • Hard Pull – These occur when a lender pulls your report, because you are applying for credit. Unfortunately, these can affect your score.
   
   These “hard pulls” actually can hurt your score if you have too many of them. How many is too many? Well, there’s no one-size-fits-all answer. This page on MyFICO provides a quick rundown on how they might impact you.
   
   From my experience, the higher your score is to begin with, the more you will feel the pain. For example, someone with a 550 score might not see any change. However if you have an 800, applying for just one credit card could knock up to 10 or 15 points off.
   
   
2. Average age of accounts
 Abbreviated “AAoA” this is a calculation which measures exactly what its name implies; the average age of your credit accounts.
   Credit scoring favors having older accounts. According to FICO’s “High Achievers” category (having a 760+), this characteristics list claims that “Most FICO High Achievers have an average age of accounts between 6 and 12 years.”
   
   See how this could be a problem with credit card bonuses? If you are applying (and then closing) accounts, you will be bringing down your AAoA. And if you learned anything in math class, then you will remember that when it comes to averages, having extreme numbers on either side of the spectrum can skew things big time. For example, if you had a 12 year old credit card and three new ones which are each 1 year old, your average account age would only be 3.75 years.

Conclusion? A no annual fee card you can keep forever, but think twice before applying for a fee-based card. It might not be a wise choice to open an American Airlines credit card and then cancel it before the first year to avoid the $95 annual fee. Rather, only apply if you plan on keeping it (and are willing to pay the fee to do so).

The other drawbacks to consider

Aside from the potential impact on your credit score, there are a couple other factors to consider:

1. The spending requirement
   
To discourage people from milking the offers, almost all the good ones will impose a spending requirement before you receive the bonus. On most cards it’s a manageable amount, like spending $500 within 3 months.
   
   On the other hand, some cards come with an extremely high threshold. For example, the Chase Ink will require you to spend a whopping $5,000 in 3 months before you are awarded the full signup offer. That can be dangerous proposition if it ends up encouraging you to overspend, in order to get the bonus.
   
   
2. Disqualifying for future offers
   
A member on my site, CreditCardForum, had previously applied for the normal American Airlines credit card offer with 30k miles. Then when a 75k miles offer came around, he applied but didn’t receive the bonus – he was disqualified for previously having the card.
   That’s how it works with most banks. Once you apply, you will never be able to get another signup bonus for that specific card. This is why you might want to hold off until those once in a blue moon offers come around.

So how many is too many?

As you see, answering the initial question is not so simple. Whether you should (or should not) apply for more credit card offers will depend upon all these different factors.
When it comes to your credit score, I wouldn’t worry too much about that as long as you aren’t planning to apply for a new loan within the next 12 months (which is how long a hard pull will affect you). If you are anticipating a big new loan/mortgage in the near future, it’s probably best to avoid getting a new card, regardless of how juicy the bonus may be.