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Posted by on Sep 12, 2013 in Barclays Arrival, Chase Freedom, Chase Sapphire Preferred, Credit Cards | 0 comments

Guide to Opening Credit Cards for Rewards

Credit card signup bonuses are larger than ever these days, and you’ll see that I recently added a top credit card bonuses tab at the top of the site. I constantly update this page with the best credit card rewards. When you go to that page, you’ll see offers for 40,000 miles, two free nights at high-end hotels, and even 50,000+ points after spending a certain amount of money on the card. It’s as if the credit card companies want you to have free money and travel for close to nothing!

 

Credit card bonuses

Credit card bonuses

 

Of course, some caveats do exist. The spending requirement for these signup bonuses are higher than ever, although that should not be a problem if you are paying for a wedding. In addition, it’s never been easier to meet these spending requirements without actually spending any money through methods, such as Amazon Payments. More importantly, however, you must be financially responsible, organized, and pay attention to details. This last point is probably what scares most beginners from opening credit cards for rewards, but the truth is it’s actually quite simple even if you’re naturally a disorganized person. As a result, I’ve prepared a guide to opening credit cards for rewards. It’s a set of five rules ranked in order of importance for people planning expensive honeymoons and looking to pay next to nothing similar to what my wife and I did.

 

Guide to Opening Credit Cards for Rewards

Rule 1: Always pay your balance in full every month

If you don’t pay your balance in full every month, then you’ll be charged interest – extremely high interest, which will negate the large credit card signup bonuses. The easiest way to make sure your balance is paid in full every month is to set up autopay through online banking. Here is an example of how to set up autopay with American Express; it’s very easy to set up, and I highly recommend it.

American Express autopay

American Express autopay

 

Rule 2: Don’t open more credit cards than you can spend

[Update 2/20/14] The minimum spend requirement for the Barclays Arrival credit card has been raised from $1,000 to $3,000, which can still be easily met with a combination of normal spending and Amazon Payments.

Opening credit cards for rewards also requires spending a certain amount of money. One of the best credit cards, the Barclays Arrival credit card, for example, requires you to spend $1,000 within 90 days to get 40,000 miles. Another top credit card, the Chase Sapphire Preferred credit card, requires you to spend $3,000 within 3 months and add an authorized user to get 45,000 Ultimate Rewards points. If you open both cards at the same time, you are looking at spending $4,000 total within 3 months or so. That’s probably quite doable if you have wedding expenses to pay for or if you use Amazon Payments as I mentioned earlier but if for whatever reason you can’t spend $4,000 in 3 months, then perhaps just open one card for now. When you’ve met the minimum spending requirement for the first card, THEN open the second card.

To apply for the credit cards discussed and other credit cards, please see my credit card bonuses page

To apply for the credit cards discussed in this post and other credit cards, please see my credit card bonuses page

 

Rule 3: Cancel the credit card before the annual fee hits

Many credit cards with large signup bonuses have the annual fee waived for the first year only. As a result, the first action you should take when you are approved for a new credit card is put a reminder on your calendar to cancel the credit card before the annual fee hits next year. I aim to cancel my credit cards about 10 months from the date of approval, but you can cancel it 7 months after opening or 12 months after opening. As a general rule, however, you should wait at least 6 months after opening to cancel a credit card or the banks might not be very happy. When the time rolls around to cancel the card, you might try to justify that the credit card is worth keeping despite the annual fee, because it offers you perks or you don’t feel like talking to someone from the bank who is trying to persuade you to keep the card. DON’T DO IT! Just ingrain it in your mind now that you will always cancel the credit card before the annual fee hits.

Rule 4: Don’t be scared by myths that opening credit cards for rewards will destroy your credit score

It’s always been a myth that opening and closing credit cards will damage your credit score. If anything, opening more credit cards and being responsible with them improves your credit score! Your credit score is influenced by a variety of factors, but the biggest factor is your credit utilization, which is basically the following: credit used / credit available. You want your credit utilization to be low, and you can achieve that by opening more credit cards and having a lot of credit available but not using that much of it. You do take a tiny (almost negligible hit) on your credit score when you apply for a new credit card but it’s temporary, and your score will rise back up again in a couple months. As I mentioned before, you can use Credit Karma to get a free approximate of your credit score.

Credit Karma score

Credit Karma score

 

Rule 5: Open (and keep open) some excellent no annual fee credit cards with each bank to build a relationship and improve your credit score

The credit cards with no annual fees don’t usually have lucrative signup bonuses compared to the credit cards that hit you with an annual fee after the first year. Nevertheless, they are extremely valuable to have for several reason. One, it improves your relationship with the bank and gives you a reason to cancel the credit cards with an annual fee when the time comes. One of my favorite excuses for closing a credit card is, “I find myself using your <insert name of that bank’s no annual fee credit card, which you currently have> a lot and don’t really need the <insert name of the credit card you’re trying to cancel> anymore.”

In addition, average age of your accounts makes up a small portion of your credit score so if you open some no annual fee credit cards and just leave them open forever (even if you rarely use them), your credit score will increase a bit over time. Lastly, some no annual fee credit cards are awesome cards for everyday use. In my opinion, Chase Freedom is one of the best credit cards from Chase, and it has no annual fee. Chase Freedom even gives you a small signup bonus when you open the card.

 

The Main Point

Opening credit cards for rewards may seem like a daunting endeavor, but it’s actually very easy. You may want to start small by opening one or two credit cards at first rather than five at a time like I do but if you follow the above guidelines, you’ll quickly get the hang of it. In addition, I like to think of it as a rebate on my wedding spending. Weddings already cost so much money so every bit you get back helps. And even if you normally travel very little, chances are you are going to go somewhere nice for your once-in-a-lifetime honeymoon so make the most of it but pay next to nothing.

In future posts, I’ll discuss further guidelines in opening credit cards for rewards including the following: calling the bank’s reconsideration line to get a quick approval for your credit card application when it goes to “pending” status, getting free money or extra bonus miles by asking for a retention offer when the annual fee on the credit card is about to hit, opening the same credit card multiple times to get the signup bonus multiple times (also known as churning a credit card). For now, I think the above rules are a good launching pad to help you get started.

 

Disclaimer: I may receive referral credit for some of the links above, which I appreciate

 

<strong><em><strong><em>[Update 5/25/13] </em></strong></em></strong><em>Unfortunately, the Priceline Rewards Visa no longer offers 2% cash back. The credit card now only offers 1% cash back.</em>

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