How Credit Card Sign-Up Bonuses Work

Getting a new card can be very rewarding

Smiling young woman with credit card and laptop paying bills online in dining room.
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Credit card sign-up bonuses, sometimes called welcome offers, almost seem too good to be true. In exchange for spending a certain amount, you’ll earn a big bonus right off the bat. Depending on the card, these rewards can be worth several hundred dollars and might otherwise take you a long time to earn. 

It’s a valuable proposition, but every sign-up bonus is different, and there are catches. Here’s what you should know about how these bonuses work before you choose a new card

How You Earn Them

You earn sign-up bonuses by spending a minimum amount within a certain period, usually the first three months after you’re issued the card. Some cards offer an extra sign-up bonus for spending even more in the first six months or year. For example, a travel rewards card might award you 50,000 bonus miles for spending $3,000 in the first three months or 75,000 miles for spending $6,000 in the first six months. 

Once you reach the spending threshold, the bonus usually takes a little while—maybe one or two billing cycles—to post to your account.

You won’t usually be eligible for the sign-up bonus if you’ve had the card (or maybe even a similar card from that issuer) in the recent past. Check the terms and conditions for details.

Cash Back or Miles

Generally, sign-up bonuses come in two flavors: cash back and travel rewards. Travel rewards might be called points, dollars, or miles, but they all refer to the same thing: units of currency that you can use for specific purposes. 

  • Cash back: Generally you can get your cash back as a statement credit or in check form. Some cards may offer you the option of depositing the rewards directly into your bank account. You may also be able to use your cash back to purchase gift cards, shop with merchants such as Amazon, or buy items through a rewards portal. 
  • Travel rewards: These bonuses can be a bit more complex. If your card is linked to a frequent flyer or hotel loyalty account, your bonus can be deposited right into that account. If you have a general travel rewards card, the bonus will be added to whatever points system that card has established. For example, Chase’s Ultimate Rewards portal lets you use your points to book travel directly, buy gift cards, or pay for purchases with specific online merchants. You can even choose to turn them into cash back.

Choosing the Best One

The first thing to consider when choosing a sign-up offer is whether your budget will comfortably allow you to earn it. You could go on a spending spree to meet the requirements. But that’s a bad idea. The last thing you want to do with a new credit card is start off being in debt. Instead, charge as many of your everyday expenses as you can, and pay off your monthly balance on time.

Next, consider the card’s annual fee, if there is one. Generally, the cards with the most valuable rewards carry the highest annual fees, although these fees are sometimes waived in the first year. If the sign-up bonus isn’t worth any more than the annual fee, you should be confident that the ongoing rewards you’ll earn will more than cover your costs.

If the fee is waived in the first year, you may be tempted to get the card, earn and redeem the sign-up bonus, and then close the card before renewal. That’s fine, as long as you’re not trying to build your credit history and improve your credit score. If that’s the case, it’s probably best to choose a card that you’ll keep longer term. 

Finally, consider whether you’re able to manage multiple cards simultaneously if you already have an open credit card. Keeping track of several cards and making sure each one is paid on time can be a chore. If you’ve got rewards to manage on top of that, you may have to keep track of expiration dates and other rules. It can get complicated very quickly.

Catches to Watch Out For

  • Make sure you know which transactions count toward your spending requirement. Any purchases you return won’t qualify. Cards may exclude cash advances and balance transfers too. Sometimes purchases of “cash-like equivalents” such as money orders, cashier’s checks, and even gambling chips won’t count. 
  • Make sure you cash out any rewards you’re eligible to redeem before closing your account. In most cases, you will lose any remaining rewards otherwise.

Bottom Line

Sign-up bonuses are a one-time opportunity, but they let you earn rewards quickly and can be quite lucrative on cards with low or waived annual fees. Consider your budget and your long-term plans before choosing a card based on its sign-up bonus. And make sure to read your credit card’s disclosure documents to avoid any pitfalls.

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