|View at Lunch, Dubrovnik, Croatia|
We are bombarded daily with offers suggesting we apply for credit cards from different card issuers. The offers come in our mailboxes and email inboxes, unsolicited and without warning. It may seem flattering that somebody wants to grant you credit, but are these offered really right for you? And have you really been offered a credit card line of credit?
Credit card offers come from numerous sources. Some are generated from purchased email lists and some from past relationships you have had with banks, retail stores, or travel related companies. Some of them even suggest you have been pre-approved. That is not really the case.
As far as pre-approval, that is only half true. You may have seemed to be eligible to the offering firm at the time they generated the mailing list, but be assured they will check your credit again if you apply. Every time a credit card issues checks your credit, a hard inquiry is done and reported on your credit report. It can negatively affect your credit score 2-5 points and will remain on your credit report for two years. Don’t indiscriminately apply for offers you really don’t want.
I look for offers that provide:
- Clear and printed information on the terms and conditions of the offer. As a travel freak, I want to know up front how many miles or points I’m going to earn. If I can’t print the terms, I don’t believe the terms.
- I’m looking in particular for the size of the sign-up bonus and what I must do to earn it. If a card offers me 100,000 airline miles if I complete $10,000 of spending on the credit card in 30 days, I’m not going to take that offer. I’m not sure I can meet those terms and conditions in such a short time period. I am more apt to apply for cards that have bonuses awarded on “first purchase” or a more reasonable minimum spend with a reasonable time frame, say 90 or 120 days. Remember, you must be able to prove you met the sign-up bonus requirements if something goes wrong on the issuer’s end of the deal.
- I want to be absolutely sure the sign-up bonus is worth considerably more than the annual fee charged. A one-night free hotel stay doesn’t really excite me as a sign up-bonus, particularly if there is an annual fee for the card. That’s not much of an incentive in my mind. I typically look for a minimum value of $500 or more in sign-up bonus before I’ll apply for a credit card. I value airline miles at 1.5 to 2 cents each and hotel points at roughly 1 penny each, except Starwood Preferred Guest (SPG) credit card points, which I value at 2.5 cents each. It takes a sign-up offer of 25,000 airline miles or more before I consider the offer worthwhile.
When you consider applying for a credit card for travel points and miles, keep three priorities in mind:
- your credit is one of your most important assets
- each application negatively affects your credit score, and
- you want to get the biggest bang for your application.
If you are not paying off your card balances in full each and every month, applying for credit cards is not for you. The interest expense and possibility of late fees will eat up any potential gain in a hurry.
For the right individual, applying for credit cards for their sign-up bonuses can have its financial benefits, but you must be aware of the pitfalls as well. Discipline and a plan of attack are musts for success.