A Beginner's Guide to Building a Credit Card Application Strategy

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Major banks in the U.S. play a huge role in the travel rewards ecosystem. We want to help you understand credit card application rules so you can build a long-term application strategy through a 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. More importantly, we'll discuss how you can maximize your value without falling out of their good graces.

A few people have gone a bit overboard. In short, they've taken advantage of rewards without creating value for credit-card issuers. As a result, and in order to protect their interests, the banks have added several restrictions on who can earn sign-up bonuses. In the second half of this article, we’ll explain these rules to help you plan your credit card application strategy.

A Win-Win Scenario for Your Credit Card Application Strategy

Banks make money from fees and interest charged to cardholders and from transaction fees paid by merchants when you use your credit card. In return, card issuers 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 credit card application and spending strategy, you can capture a significant return on your spending — in the form of points you can use for future travel.

Who Pays for Rewards?

The only part of the bank's revenue that you pay for as a customer should be credit card annual fees. Plus, 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.

Related: 21 Credit Card Benefits Every Traveler Should Know About

You can avoid interest and other fees by paying your full monthly statement balance by the due date. Also, 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. It should go without saying that financing purchases (by paying a small part of your bill each month and accumulating interest) will wipe out any value you get from rewards. In fact, it will cost you much more. Unfortunately, interest is a significant part of how banks can offer generous credit card rewards. This cost falls on those who spend more money than they can afford to pay back each month.

The third way that banks generate revenue is from credit card processing fees. These are fees that merchants pay to banks when you swipe or tap your credit card. These fees are priced into the goods and services you buy. You’ll pay the same price whether you’re using a credit card that earns rewards or paying with a no-rewards-included debit card. That means the folks who use cash or a non-rewards card are indirectly helping to finance the rewards bonanza — without enjoying any of the benefits.

You might see merchants offering “cash discounts” to encourage consumers to use cash to pay for goods and services. Merchants who do this typically offer a 2%–5% discount when paying cash. It's up to you to decide whether that's worth it instead of earning travel rewards. However, we don't recommend paying cash for purchases where you might need purchase protection.

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. Ultimately, though, banks are looking for a serious, long-term relationship. When you open a new credit card account, the bank is betting it can cover the cost of giving you a welcome offer by recouping that cost 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. Thus, your potential lifetime spending is far more critical than how much you spend 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 want in the future. You don’t need to rush to start a relationship with all of them right away. In fact, 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 credit 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 a customer already.

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 your credit score) will improve.

Related: A Beginner's Guide to Building Healthy Credit

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 a key factor in your credit score, so this strategy can improve your standing with other banks, too.

This doesn't mean you should never close a card, but keeping at least one account with each bank can be a good idea. Banks will generally do their part to avoid severing ties. Often, you can convert an existing account to a no-annual-fee product if the original card is no longer a good fit.

Related: Tips for Managing Your Credit Score

Can I earn multiple sign-up 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 okay to apply for new rewards cards better aligned with your travel goals. The key here is to have a strategy, picking credit cards that offer benefits worth keeping for the foreseeable future.

Competition in the rewards space is fierce, and banks offer lucrative welcome offers because it is worth the investment. If you don't go overboard, changing cards occasionally is fair game. You're simply capturing a chunk of the profits you generate from your everyday spending.

Related: How Does a Credit Card Signup Bonus Work?

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 without using the cards again afterward. Numerous applications in a short amount of time can hurt your credit. It's also a big red flag to banks.

You can think of the rules in the second half of this post as guardrails for your credit card application strategy. These policies make it pretty clear what the banks see as 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. If 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 offer?
• Do the bonus categories reward my spending patterns, helping me earn more points than I do now by using this new card strategically?
• Are the card's ongoing benefits worth more than the annual fee?

Related: The Best Rewards Credit Cards for Each Spending Category

Credit Card Application Rules

In recent years, banks have become much more sophisticated at excluding customers who aren't profitable. This is mostly a good thing. The rules can be confusing and sometimes frustrating, but these rules help 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 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. Understanding the rules you may encounter helps you build a long-term credit card application strategy. Rules may include:

• Total number of cards (or cards you can have of a certain type) you can have with that issuer.
• The 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 offers.

Total number of cards

Some issuers limit the total number of accounts you can have with them at one time. For example, Amex limits customers to a maximum of five credit cards. This limit includes consumer (personal) and business cards. However, the Amex policy allows up to 10 cards with no preset spending limit.

A total-cards policy forces you to prioritize. However, you can generally close one account to open another if you've reached the maximum but then your needs change.

Related: Charge Card vs Credit Card — What's the Difference?

Total credit limit

Another type of rule limits your total line of credit. For example, Chase doesn't necessarily care how many of its credit cards you have. However, it sets a maximum amount of credit it is 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 and will be different for every customer, even changing 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 eight-day period and only two personal credit cards in a 65-day period. Even slower, Citi only approves one small business card per customer every 90 days. Many credit card issuers have some type of restriction on application frequency. 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. This may sound like the rule above, but we're talking about your application history across all issuers.

Applying for numerous credit cards in a short period is one sign that a borrower might be a greater risk. This can negatively affect your credit score, as well, due to the temporary decrease from credit inquiries. For the best approval odds, it’s advisable to spread out applications.

The key thing to understand about this type of rule is that it isn't entirely dependent on your credit. Even with an excellent credit score, you might still be denied 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 why they weren’t approved and shared their experience with the community.

Related: What Credit Scores Get Approved for Top Rewards Credit Cards?

History of approvals

Some banks will not approve a new account if you’ve recently opened a certain number of cards. 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 it sees five or more new credit card approvals on your personal credit report in the past 24 months. Other credit card issuers are less specific about the number but still can be sensitive to the number of new accounts showing on your credit report.

History of closing cards

Sometimes, a denial can result from recently closing a specific card or a card that earns the same type of points. Previously, Citi wouldn’t approve you for a ThankYou Rewards-earning card if you’ve earned the sign-up bonus or closed any card in the family in the past 24 months.

That Citi policy is no longer in effect, but the key takeaway is that closing an account can cast a long shadow. You might strike a whole family of cards from your options for up to two 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. 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.

You also may be denied if the bank believes you regularly close its cards and aren't a valuable, long-term customer.

History of earning a welcome bonus

Lastly, you might be denied a lucrative welcome offer 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 offer on a particular card in the past, you won't be eligible for another welcome offer on that same card. During the application process, you may see a pop-up message alerting you that you could apply for the credit card but wouldn't receive the welcome bonus.

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.”

Importantly, you should note that these restrictions usually apply to when the bonus was received, rather than when you opened the account. The spending period for a welcome offer can range from three months to up to a year. Make sure you keep track of the dates when you received a bonus. If you're not sure, you can ask the bank.

Final Thoughts

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 as part of your credit card application strategy. 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” — as the saying goes — 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 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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