What Is a Credit Card Sign-Up Bonus?

Credit cards

Credit card sign-up bonuses can be a good deal — but only if you’re careful. Photo: Sean MacEntee

Unless you’ve opted out of junk mail or targeted offers altogether, you’ve probably gotten at least a handful of credit card bonus offers in the mail. Most of them read something like this:

“Spend $500 on your card within 90 days and earn $200 in cash back.”

“Spend $3,000 on your credit card within three months of account opening and earn 50,000 airline miles!”

“Act now for up to nine free nights at participating hotels worldwide!”

Most people take a quick glance at these offers and chuck them into the recycling bin. Meanwhile, others are intrigued and choose to learn more. But what do they find out?

Is This Just a Scam?

It’s easy to dismiss mail like this as a scam. However, the vast majority of credit card sign-up bonuses are completely legitimate, and even “free” in most cases. Here’s how they work:

Basically, a card issuer or bank offers an incentive (sign-up bonus) to get you to complete a task. Usually that task involves signing up for the credit card and spending a certain amount of money on it within a defined time frame. Let me give you an example.

The Chase Sapphire Preferred® Card offers 50,000 bonus points when you spend $4,000 on purchases in the first 3 months from account opening. A few more benefits that come with the card:

  • 2X points on travel and dining at restaurants & 1 point per dollar spent on all other purchases
  • $0 foreign transaction fees, plus chip-enabled for enhanced security and wider acceptance when used at a chip card reader
  • 1:1 point transfer to leading frequent travel programs at full value – that means 1,000 Chase Ultimate Rewards points equal 1,000 partner miles/points
  • Introductory Annual Fee of $0 the first year, then $95

Ultimate Rewards points can be redeemed for travel through the Chase Ultimate Rewards® travel portal at a rate of 1.25 cents per point. In other words, your 50,000 bonus is good for $625 in travel when you redeem through Chase Ultimate Rewards® — enough for several free hotel stays or a round-trip plane ticket within the continental U.S. Meanwhile, they can also be transferred to at a 1:1 ratio to some of the most popular airline and hotel loyalty programs out there, including Hyatt, Southwest Airlines, and more.

What’s the Catch?

The truth is, there isn’t much of a catch at all… if you are able to follow the rules. And by that, I mean having the ability to meet the spending requirement without over-stretching yourself, and never paying interest on your purchases.

In this example, the Chase Sapphire Preferred® Card asks you to spend $4,000 within 3 months of card opening — a difficult thing to achieve for many who have relatively low expenses. If you don’t have enough upcoming bills or required purchases to knock that amount out in less than three months, you are better off choosing a different rewards credit card with a lower spending requirement and perhaps different rewards.

But if you did pursue this offer, how long would you need to pay it back? If you don’t have the cash to pay your bill in full immediately, you should probably stay away from rewards cards altogether. Because that’s where they get you.

The catch, if there is one, is that card issuers hope you’ll pay interest on your purchases for eternity, and completely cancel out the value of the rewards in the process. In fact, that’s how these types of sign-up bonuses are paid for to begin with — with your money.

Sign-Up Bonuses: Easy Money or Too Much Risk?

Almost every major rewards credit card offers a sign-up bonus of some kind, with the most common bonuses being cash back, free hotel stays, or airline miles. The key is finding a card that offers benefits you will actually use — and without too much effort on your part.

The truth is, tons of people benefit from sign-up bonuses, and they do it without paying interest or an annual fee. To become one of them, you simply need to know your limits and be willing to try something new. And if you play your cards right, you could score statement credits, gift cards, free travel, and more.

However, if you’re careless, you could end up with thousands of dollars of credit card debt. And nobody wants that.

Have you ever signed up for a rewards credit card? What is the best sign-up bonus you have ever earned? Tell us in the comments.

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