With sign-up bonuses for airline rewards cards hitting new heights, savvy frequent fliers can pocket thousands of extra miles -- for free -- by signing up for a succession of credit cards with mileage bonus offers. Pocket the miles, ditch the card, and repeat as necessary.
It's a good time to go for the rewards, say industry observers: As lenders and airlines compete for the prized frequent flier demographic, credit cards are offering bigger and better airline mileage extras to woo new customers. Getting such cards one after another is a strategy that can put your credit score at risk, but credit experts say responsible credit users can manage it.
Airline mile bonuses build
Randy Petersen, editor of Inside Flyer magazine, goes a step further. "Today, if you're not getting 25,000 miles, you're not doing very good," he says, because mileage bonuses "are way, way up there." There even have been offers up to 40,000 miles for some of the business cards, he says.
Enjoy the high-flying times while they last, he warns: Bonuses are unlikely to keep climbing because the economics wouldn't make sense for card issuers. "We're probably at 95 to 100 percent of what we'll ever see in bonuses," says Petersen.
It's no secret to the credit card industry that some consumers "churn" rewards cards, grabbing sign-up bonuses and then ditching the cards, but for now, the issuers don't mind.
"They've already built in that a lot of people are going to try to sign up for the bonus and not use the card," says Robert Manning, research professor and director of the Center for Consumer Financial Services at the Rochester Institute of Technology in New York.
Where the points are
Citi's Aadvantage Citi Select American Express and Citi Platinum Select World MasterCard, for example, each award 25,000 American Airlines miles when you spend $750 within your first four months, while United's Mileage Plus Platinum Business Card delivers 20,000 miles after your first purchase. Both cards waive their hefty annual fees for the first year.
Before chasing the rewards, you'll need to decide if it makes financial sense for you. You'll reap the highest benefits with the least chance of damaging your credit rating if you:
Keeping your score
"Each time a consumer applies for new credit, a 'hard inquiry' is generated, causing a slight impact on the credit score," says Steven Katz, a spokesman for TransUnion, one of the three major consumer credit reporting agencies. "Opening multiple new credit accounts over a brief period of time will amplify that score impact. How much that affects an individual's credit score will depend on that individual's own circumstances."
Spacing your credit card applications throughout the year can lessen any damage, experts say. "If you did three or four applications within a month or two months, that could start to make a significant ding on your score -- 20, 60, even 80 points," says Evan Hendricks, author of "Credit Scores & Credit Reports" and longtime editor of the Washington-based newsletter "Privacy Times."
Dedicated credit card rewards collectors tend to monitor their credit reports regularly. Aaron McCrea is a Bloomington, Ind., lawyer who has racked up more than a million American Airlines frequent flier miles since 1997, primarily through personal and business credit cards and bonus offers. "I've kept track over the 10 years, and it's had no negative effect on our credit rating," he says. McCrea says he regularly uses four credit cards to earn miles, supplemented by the occasional new card with an enticing sign-up bonus.
Is it worth it?
Here's what to look for:
To cancel or not to cancel?
There are pros and cons to both, says Gary Symington, president of Debt-Free America. Canceling the card right away may drop you five points on your credit score, he says, while opening up your credit limit by keeping the card "may drop you 10, 15, even 20 points."
You'll also need to pace yourself: Closing more than one or two credit cards a month can raise red flags on your credit report, says Julie Zachariason, counseling supervisor for LSS Financial Counseling Service based in Duluth, Minn.
On the other hand, if the card isn't costing you anything out of pocket and you don't already have too many credit cards, you might want to keep the account open as a backup, says Hendricks.
This story ran on CreditCards.com on April 10, 2008.