Two weeks ago, we set out to begin a basic series about traveling using points and miles. We covered the basic – what these currencies are. Then we talked about general ways to earn them. Today we will talk about one of the fastest and easiest way to earn huge chunks of points and miles, but one that comes with some potential pitfalls: taking out credit cards for the sign-up bonuses.

Most credit card issuers want to earn your business. So in addition to regular “perks,” things like cash back or bonus points in various categories, some will offer extremely generous one-time bonuses to new customers for signing up and putting a specific amount of money – called “spend” – on the card within a short period of time of opening the account.

Let’s examine four basic points when determining whether or not this is worthwhile. First, what are the downsides of opening new credit card accounts? Second, what is the sign-up bonus worth? Third, what is the amount of spend required. Finally, what do you do now that you have this extra credit card?

Potential Pitfalls to Opening New Credit Card Accounts

First and foremost, and I cannot stress this enough, never open a new credit card if you are unable to pay ALL of your accounts off in full each month. This is what the issuers want: for you to accrue insanely high interest charges. If you do so, taking out new cards for the bonuses will just end up costing you money, as the bonus can’t compare to the interest at the rates charged by credit card companies. However, just because you shouldn’t take out new credit cards doesn’t mean you can’t travel for free on points and miles, and we talked last week about other ways to earn.

Secondly, let’s examine a couple of basic tenets of your all-important credit score. There are a few elements that are impacted by opening new credit card accounts. First is your debt to credit ratio, and this is a positive effect as you will increase your credit while lowering (in theory) the amount of it being utilized (your debt). Second, one element of your credit score takes into account the average length of time you have had your various accounts. This item will be impacted negatively, as a new account will bring down that average. Banks want customers who keep accounts long-term, so they view too many new accounts as a negative. Finally, with each application – not with each opening, simply the application – for a new credit card, the issuer will do a “hard pull” of your credit score to see your history. This process will give you a temporary (6-12 month) two points reduction in your credit score.

Finally, there are some general negatives around opening too many accounts too quickly. Doing so can cause your account to be flagged and for you not to be able to be approved for new credit lines. In addition, some issuers have specific requirements for their own cards. American Express will not allow you to have more than four personal cards at any given time. Chase will not approve any new accounts if you have opened or closed more than five accounts over the prior 24 months. Others have other requirements.

What is a Sign-Up Bonus Worth?

Sign-up bonuses fluctuate. For instance, an American Airlines co-branded credit card with Barclay could offer anywhere from 30,000 bonus miles to 60,000 in a special. An American Express Hilton card could offer 75,000 or 100,000. If you want to know what that is actually worth, explore the airline or hotel website to price award flights/stays.

I try to monitor basic signup bonuses. If an airline gets to 50,000 or more miles, I consider it a good bonus. Same for hotels and 100,000 points. But when it comes to whether or not it is worth it, we have to take into account the amount of spend necessary as well.

What Amount of Spend is Necessary?

Let’s begin with this basic premise: you will spend approximately the same amount of money every month on your credit cards regardless of which card you use. That being the case, let’s assume your credit card gets 1% cash back. On $3,000 over three months ($1,000 per month), that would be $30 cash back. Let’s now assume that the aforementioned American Airlines card offered me 50,000 AAdvantage miles for that exact $3,000 spend over the first three months from card opening. That can be worth approximately $750 on a flight (45,000 is an off-peak round trip to Europe, for instance). That is 25 times the reward on that same $3,000 I would spend anyway!

This is why sign-up bonuses are so potentially lucrative, as rather than a basic point per dollar I can get a huge number all at once, and not spend anything I wouldn’t otherwise.

What to Do With an Extra Credit Card

Ok, so you take out a new card, make the minimum spend, and get the sign-up bonus. What now? Many of these cards have annual fees that you might not want to pay. Can you just cancel it?

The short answer is yes, but… Most credit card issuers will require the card to remain open for at least 6 months or can take back the signup bonus. Just opening and closing cards, as mentioned above, is also not good for your credit score. So while you can cancel the card at six months and a day, it might not be in your best interest to do so. (You can also downgrade a fee card to a free card in most cases.)

I currently have fourteen open credit card accounts. Those cards add to my life in some way, either by being long-held accounts and helping my credit score, or being large lines or credit. More often, the perks they come with (free checked luggage, early boarding, hotel status, or even annual free nights) are worth the fee to me. With the exception of my four credit cards that are “best in category,” meaning they give me the best reward on certain categories of my regular spending, they stay in a drawer.


Assuming you can responsibly have a credit card, sign-up bonuses are one of the best way to quickly build your points/miles balances. Next week we will talk about how to set travel goals and plan toward achieving them, using tactics like this.

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