A credit card sign up bonus is an incentive offered by card issuers to new cardholders, in an effort to gain new business by attracting those who have never held a card before, or by wooing others away from their existing card. In the case of rewards points and frequent flyer points cards, the bonus normally takes the form of tens of thousands of points, which would normally take years of card spending to acquire.
Since points can usually be redeemed for account credits (effectively cash), retail spending vouchers and airline flights or seat upgrades, they are a very alluring incentive.
Sign up bonus vs first purchase bonus
These two terms are in fact used more or less interchangeably. While the term 'sign up bonus' implies that all that is required is for the new cardholder to apply and be approved in order to earn the bonus, the fact is that most offers of this kind demand that the new cardholder spends a qualifying amount within a short period after card account approval. A typical condition would be for the cardholder to spend $3,000 using the card within 90 days of account approval.
These targets are rarely difficult to achieve, and are ranked according to card level, with the more expensive, premium cards offering larger bonuses and usually having higher spending targets, in line with the likely income profile of the cardholder.
Only eligible purchases count
In order to qualify for the sign up bonus by meeting the minimum spend criteria, only certain types of spending will count. Typically, the same conditions apply to bonus points as those applied to ongoing points earning. This means that cash and cash equivalent transactions are excluded from both points earning and sign up bonus points minimum spend targets. The types of transactions almost certain to be excluded are:
- Balances transferred from another card or loan
- Cash advances
- Purchases of traveller's cheques or foreign currency banknotes
- Credit card fees (including annual fees) and interest charges
Other types of payment which may be excluded by some (but not all) card issuers are:
- Payments made from a credit card using BPAY
- Government charges such as payments for car registration or to Australia Post (although there are cards that earn points on government spend)
- Purchases of gift cards
- Gambling transactions
Credit card churning
Credit card 'churning' is a strategy used by some people to maximise the benefit derived from sign up bonus point offers. Churning can take two forms: applying for multiple sign up bonus cards at the same time, or applying for cards in rapid succession, waiting only until the bonus points have been received before cancelling the card account and applying for another card. But these procedures are fraught with risk.
Firstly, applying for many cards at the same time, or in quick succession, can seriously damage your credit score. Each credit card application results in a 'hard' credit enquiry by the prospective lender being recorded in your credit history file. These hard enquiries have a negative effect on your credit score, and could make it more difficult for you to be approved for credit in the future.
Secondly, striving to meet too many spending targets on separate cards could see you committing to spending more than you can really afford, leading to credit card account balances you cannot pay off in full by the due date. The resulting interest charges will seriously reduce the benefit of any sign up bonuses you might earn.
Finally, most card issuers will not grant the sign up bonus to 'new' cardholders who currently hold another of their rewards points cards, or who have held one of their rewards cards in the previous 12-18 months. So taking a scattergun approach to sign up bonuses could end up severely limiting your future rewards card choices.
However, there's no denying that there are lots of points to be earned if you're prepared to spend a large amount of time chasing sign up bonuses, making card applications, monitoring your card usage and cancelling cards.