In investing, when a market inefficiency is made well-known and also easy to replicate, you can bet that inefficiency will soon disappear. I was catching up on my magazine stack and saw that Bloomberg Businessweek wrote about credit card churning, where people aggressively sign up for 16 credit cards in a year and bend the rules as far as they will go.
As someone who just came back from Costco, this made me think of their free samples. Manufacturers give out these free samples with the hope their upfront expense will be covered by the additional product sales. Most people will pass on by, some will take one sample, and a few will treat it like their personal buffet line. Now, there are no rules posted, but obviously if everyone takes 10 samples then the system falls apart.
I’m not hatin’, just observin’. I’ve certainly gotten my share of bonuses in the past. I have a dedicated Google Spreadsheet and know that business card organizers are a great way to keep physical cards organized. (I used to use baseball card pages, but this is more compact and nothing falls out.) However, I am actually quite fine with credit card companies adding some limitations on their bonuses. As the saying goes, I’d rather shear the sheep many times rather than skin it once.
You don’t need to apply for 16 credit cards to earn a healthy dose of travel perks. Keep in mind that for many years, a sign-up bonus of $100 was noteworthy. Right now, I probably won’t write about something unless it is worth at least $500 in total bet value (taking into account both upfront and ongoing rewards, minus any annual fee). This is still a relatively good time for rewards, if no longer the absolute best.
At $500 a pop, just four cards per year will still net you $2,000 in annual perks. Consider it your reward for having a high credit score and good money management skills. (If you don’t have both, don’t do this at all.) Be a sustainable, efficient credit card sampler. Focus on the low-hanging, juiciest fruit only. High value, low work. It’s less stress, less risk, and you can still cover a big chunk of your annual vacation budget every year. I only apply for a maximum of roughly 4 cards per year for myself, and 2 cards per year for my spouse. For example, here are four cards that we have gotten recently that adds up to over $2,500 in value for us:
- Citi Prestige Card Review ($250×2 in airfare credit, $800 in American Airlines airfare, Global Entry and TSA PreCheck reimbursement, $450 annual fee)
- Bank of America Travel Rewards credit card review ($200 travel bonus + possible 2.625% back towards travel, no annual fee).
- Citi Hilton Reserve (redeemed for 2-night $$$ stays at both Hilton Waikoloa and Grand Wailea Maui, $95 annual fee)
- Chase Sapphire Preferred Card (transferring Ultimate Rewards between eligible card types and spouses keeps them active, first year annual fee waived, then $95 a year).
Back to the Costco free sample analogy. In end, if the product is good, it will be successful. If something isn’t good, giving away stuff won’t matter. For a long time, American Express had the “king” of credit cards points with their Membership Rewards points. But they starting chipping away at the value, and Chase introduced their brand-new Ultimate Rewards points and their Chase Sapphire Preferred card. These days, most people will tell you that Ultimate Rewards are a notch better because they are more flexible and have a higher base value per point.
When you apply for a card, your job is to both happily take the free stuff but also give them a chance to earn your business. Use it for purchases. Try their card website and see how easy it is to pay your bill online or set up automatic payments. Try their points website and see how easy it is to redeem your points. Call up their customer service and see how easy it is to dispute an incorrect charge. If it is a co-branded card, try out the hotels or airlines. See if it fits your lifestyle, be it Four Seasons or Motel 6.
Some can surprise you, especially if you learn about their lesser-known perks. For example, the American Express Delta Platinum SkyMiles card does not heavily advertise that it offers a free economy companion ticket each year upon card renewal. As a couple who regularly flies coast-to-coast on Delta, the free companion ticket has easily offset the $195 annual fee of the card and then some every year, while we also get free checked bags, priority boarding, and improved saver award seat availability.
The article focuses on customers getting stuff from credit card companies. Don’t forget there would be NO bonuses if credit card companies weren’t trying to get your money, either indirectly through the transaction fees you generate and your personal spending habit data, or directly through the interest you pay on your balances. Let them try to earn your business. Keep the good ones. Cancel the ones that fall short. There is nothing wrong with that.