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Major banks in the U.S. play a huge role in the travel rewards ecosystem. The goal of this post is to help you build a long-term, sustainable relationship with the banks that offer the most valuable rewards cards.
In the first half of this post, we’ll look at the big picture to explain why the banks are providing these opportunities for free travel. And, more importantly, how you can maximize your value without falling out of their good graces.
A small number of people have gone a bit overboard—taking advantage of rewards without creating any value for credit-card issuers. As a result, the banks have added several restrictions on who can earn sign-up bonuses. We’ll explain these rules to help you plan your application strategy.
- A Win-Win Scenario
- Who Pays for Rewards?
- What Banks Want
- Credit Card Application Rules
- Final Thoughts
A Win-Win Scenario
Banks make money from fees and interest charged to cardholders and from transaction fees paid by merchants when you use your card. In return, they offer lucrative signup bonuses to attract new customers and ongoing rewards to encourage everyday spending.
You can think of these rewards as a small discount on everything you buy. With the right application and spending strategy, you can capture a significant return on your spending as points you can use for future travel.
Who Pays for Rewards?
The only part of the bank's revenue that you pay out-of-pocket as a customer should be credit card annual fees. And, if you choose cards that are a good fit for your travel goals and spending patterns, the annual fee should always be smaller than the value you get from the card's benefits.
You can avoid interest and other fees by paying your full balance each month. And you can use credit cards with no foreign transaction fees when shopping abroad to avoid transaction fees.
High interest rates are a big part of what makes credit cards profitable. And it should go without saying that financing purchases will wipe out any value you get from rewards—and cost you much more. Unfortunately, interest is a significant part of how banks can offer generous credit card rewards. And this cost falls on those who spend more money than they can afford to pay back.
The third way that banks generate revenue is from credit card processing fees. These are fees paid by merchants to banks when you swipe or tap your credit card. These fees are priced into the goods and services you buy. So, you’ll pay the same price regardless of whether you’re earning rewards on your purchase. That means the folks that use cash or a non-rewards card are indirectly helping to finance the rewards bonanza—without getting any of the benefits.
What Banks Want
At the top of every bank’s online-dating profile, you’ll see that they’re very eager to meet new customers. But, ultimately, banks are looking for a serious, long-term relationship. When you open a new card account, the bank is betting that they’ll be able to cover the cost of the welcome offer over the life of the relationship.
Spending Matters, but Lifetime Spending Matters More
Since banks capture a percentage of every transaction through merchant fees, total spending is a key part of how they think about customer value. But the banks are in this for the long haul, so your potential lifetime spending is far more important than how much you spent on your card this year.
Over the long term, your financial situation will change. Each bank wants to get a card into your wallet and compete for a share of your future spending. For this reason, the length of your relationship with the bank is a better predictor of your value as a customer.
Getting Started with the Banks
One way to expand your future options is to start building relationships with the banks that offer rewards cards you may eventually want. You don’t need to rush to start a relationship with all of them right away; a slow-and-steady approach will put you in an excellent position to take advantage of new offers when they emerge.
Banks use your FICO score and other credit factors to decide whether to approve you for a new card. Assessing risk and profitability using third-party information isn't an exact science. It's much easier to use data from someone who is already a customer.
If your credit history is limited, this might mean you need to start with a card that wouldn't be your first choice. Once you establish a record of timely payments and responsible use of your available credit, your reputation with the bank (and also your credit score) will improve.
Building Long-Term Ties
Since banks want long-term customers, you can increase your perceived value by maintaining your oldest accounts. The length of your credit history is also a key factor in your credit score, so this strategy can improve your standing with other banks too.
This doesn't mean you shouldn't ever close a card, but we think it's generally a good idea to keep at least one account with each bank. Banks will generally do their part to avoid severing ties. They will often let you convert an existing account to a no-annual-fee product if the original card is no longer a good fit.
Related: Understanding Your Credit Score
Can I Earn Multiple Signup Bonuses from a Bank?
Banks know the rewards card that was a perfect fit for you as a college student might not be so great in your late 20s. It’s absolutely okay to apply for new rewards cards that are better aligned with your travel goals. The key here is to be strategic. Pick cards that offer benefits that make them worth keeping for the foreseeable future.
Competition in the rewards space is fierce, and banks offer lucrative welcome bonuses because it is worth the investment. If you don't go overboard, changing cards from time to time is fair game. You're simply capturing a chunk of the profits you generate from your everyday spending.
What to Avoid
There is a big difference between someone who opens a few cards per year and optimizes their spending to maximize rewards and someone who opens dozens of new cards to earn signup bonuses. Lots of applications in a short amount of time can hurt your credit and is a big red flag to banks.
You can think of the rules in the second half of this post as guardrails for your application strategy. These policies make it pretty clear what the banks see aggressive behavior or gaming the system. However, that doesn't mean you should get as close to the edge as possible.
Common sense will go a long way. As long as you stop to think about the value of your relationship from the bank's perspective, it's pretty hard to get yourself in trouble without realizing it. The ‘bad apples' usually know who they are.
Here are a few questions to ask yourself:
- Can I articulate a good reason for switching cards or opening a new one without focusing on the welcome bonus?
- Do the bonus categories reward my spending patterns? Am I likely to earn more points than I do now by using this card strategically?
- Are the card's ongoing benefits worth more than the annual fee?
Credit Card Application Rules
In recent years, the banks have become much more sophisticated at excluding customers that aren't profitable. This is mostly a good thing. The rules can be confusing and sometimes frustrating, but they protect the points-and-miles hobby from becoming unsustainable.
Each bank has its own application rules, and sometimes a single bank will have different policies for a specific card or family of cards. We do our best to explain these policies on our credit card review pages. Also, we also maintain a resource covering the most important application rules for each credit card issuer.
In addition to the published rules—which you'll find on the bank's application page—there are also ‘unwritten' rules that are enforced behind the scenes. Let's take a look at six types of rules you should know.
- Total number of cards (or cards you can have of a certain type)
- Total amount of credit you can have extended to you from a particular card issuer.
- History of applications and approvals
- Timing of applications
- History of closing cards
- History of earning welcome bonuses
Total Number of Cards
Some issuers limit the total number of accounts you can have at a time. For example, Amex limits customers to a maximum of 4 credit cards. This limit includes consumer (personal) and business cards. However, the Amex policy allows up to 10 cards that utilize the Pay Over Time option, which allows you to pay off select charges over time, with interest.
A total-cards policy forces you to prioritize. However, you can generally close one account to open another if your needs change after you reach the maximum.
Total Credit Limit
Another type of rule limits your total line of credit. Chase doesn't necessarily care how many credit cards you have with them. However, they set a maximum amount of credit they are willing to give each customer. For example, Chase might restrict you to $30,000 in credit across all accounts.
This is one of those unwritten rules which will be different for every customer and will change over time. The good news is that this type of restriction can be pretty flexible. If you've bumped up against your total credit limit, you may be able to move your line of credit from one account to another.
Timing of Applications
Some banks restrict the number of applications they will approve in a certain period of time. For example, Citi will only approve one card in any 8-day period and only one personal and one business card in a 60-day period. Many credit card issuers have some type of restriction on application frequency. So, it's a good idea to do your homework if you plan to apply for multiple cards with the same bank.
History of Applications
You might not be approved for a new card because you have too many recent applications. While this may sound just like the rule above, in this case, we're talking about your application history across all issuers.
Applying for a lot of cards in a short period is one sign that a borrower might be a greater risk. This can have a temporary, negative effect on your credit score, so it’s advisable to spread out applications for the best odds of approval.
But the key thing to understand about this type of rule is that it isn't entirely dependent on your credit. Even if you have an excellent FICO score, you might still be denied for a new account because you have too many recent applications. This is another rule you aren't likely to find in the offer terms. We rely on data points from folks who asked about why they weren’t approved and shared their experience with the community.
History of Approvals
Some banks will not approve a new account if you’ve opened a certain number of cards recently. Unlike the previous rule, unsuccessful applications won’t hurt you in this case.
The most well-known example of this rule is Chase’s 5/24 policy. Chase won’t approve you for a new card if they see five or more new credit card approvals on your personal credit report in the past 24 months.
History of Closing Cards
Sometimes a denial can be the result of closing a specific card, or a card that earns the same type of points too recently.
For example, Citibank won’t approve you for an American Airlines co-brand card if you’ve opened or closed that card in the past 48 months. Citi's ThankYou Rewards cards have the same type of rule, but it applies to the whole family of cards that earn ThankYou points. Citi won’t approved you for a new card in this group if you’ve opened or closed any card in the family in the past 24 months.
The key takeaway here is that closing an account can cast a long shadow. You might take a whole family of cards off your list of options for up to four years. The good news is that if you know about the rule, you may be able to change your sequencing to get the new card before closing the card that triggers the waiting period.
In some cases, converting a card to a different product won't count as closing an account. So, if you're stuck with a card that isn't a good fit for you anymore, call the bank to see if you can change to something else. Because banks love long-term relationships, many will let you downgrade to a card with no annual fee.
History of Earning a Welcome Bonus
Lastly, you might be denied a lucrative welcome bonus if you don't meet certain criteria. That can be the case even if the bank allows you to open a new account. The most strict example of this rule is Amex's “once-per-lifetime” policy. If you earned a welcome bonus on a particular card in the past, you won't be eligible for another welcome bonus on that same card.
Other issuers require a specific waiting period, which should be clearly stated in the offer's terms and conditions. For example, you might see language like this:
“This new cardmember bonus is not available to either (i) current cardmembers of this credit card, or (ii) previous cardmembers who received a new cardmember bonus for this credit card within the last 24 months.”
It’s important to note that these restrictions usually apply to when the bonus was earned or awarded rather than when you got approved for the card. The spending period for welcome bonuses can range from three months to up to a year, so make sure to build in plenty of extra time.
Learning about credit card application rules won't be the most exciting part of your points-and-miles education. But it's hard to overstate the importance of building a healthy business relationship with the banks. If you follow the general advice in this post, you'll be on the path to a sustainable rewards strategy that can save you tens of thousands of dollars on travel.
Remember that earning points is a marathon. Slow and steady wins the race—and keeps you off the banks' naughty list. If you pace yourself, you'll be in a perfect position to take advantage of great offers when they come along.
Over time, you'll build out a portfolio of credit cards that offer a great return on your regular spending and benefits that far exceed the cost of their annual fees.
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