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How Credit Card Bonuses Got So Big and Hard to Grab

May 8, 2017
Credit Card Basics, Credit Cards, Rewards Credit Cards
Credit Card Sign-Up Bonuses Play Hard to Get
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As credit card sign-up bonuses soar to new heights, at least two things are true:

  1. It’s easier than ever to find valuable offers.
  2. It’s harder than ever to earn them.

Yes, 100,000-point sign-up bonuses are out there — but you might have to spend $4,000 in three months to earn one.

“The really lucrative bonuses that make all the headlines and get all the press are generally only available to a relatively small niche of customers,” says Edward Niestat, head of the comparative analytics and data business at Novantas, a financial services advisory firm.

Meanwhile, the smaller, easy-to-earn deals that flourished in the early 2000s have disappeared thanks to the 2008 financial crisis. But with some planning, you can still take advantage of today’s larger bonuses.

Sign-up bonuses: Before and after

Before the financial crisis, sign-up bonuses tended to be relatively small and easy to earn. Consider these three from 2006:

  • 1,000 bonus points with your first card purchase
  • 5,000 bonus miles upon approval
  • 10,000 bonus miles with first purchase and payment

Compare those with a sampling of sign-up bonuses on cards today:

  • 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening
  • 40,000 miles once you spend $3,000 on purchases within 3 months of approval
  • $100 after you spend at least $500 on purchases in the first 90 days of account opening

The difference is hard to miss. This dramatic change took shape during the financial crisis. Massive credit losses had prompted issuers to close accounts and lower credit limits. Banks failed. Consumer credit card spending plunged.

When it was over, the credit card companies that survived focused on the same goal: persuading cardholders with good credit and high incomes to loosen their purse strings.

“Card issuers … had to create new accounts to offset their lost accounts that they themselves caused and the economy caused,” says Robert Hammer, CEO of R.K. Hammer, a bank card advisory firm.

Sign-up bonuses were a natural and practical way for issuers to court consumers. The Credit Card Act of 2009 restricted certain low-interest teaser rates, but rewards remained mostly unregulated. Issuers could establish their own rules for sign-up bonuses — including sizes and requirements.

Bonuses — and qualifications — get supersized

Issuers that made it through the financial crisis had fewer competitors than before. But winning back consumers still wasn’t easy.

“Those competitors [that survived the crisis] had relatively deeper pockets, so the competition for customers got a little bit more expensive,” Niestat of Novantas says.

Credit cards that paid rewards in points offered sign-up bonuses worth an average of $200 in 2011, according to NerdWallet data. The data were weighted by card sign-up rates — that is, bonuses of more popular credit cards held more sway than bonuses of less popular cards. By 2015, that weighted average had risen 75% to about $350, and the numbers continue to climb. Offers of 100,000 points, once the Holy Grail of sign-up bonuses, are becoming more common. 

As issuers increased sign-up bonuses, spending requirements became the norm. Caveats began cropping up around 2008. Issuers provided rewards only after you met minimum spending requirements — for example, charging $750 to the card within the first four months.

These were partly designed as a financial safeguard for banks, Hammer says. They made it a little harder for consumers to open a card, take the sign-up bonus money and run.

“[Banks] were saying, ‘OK, we’re back to normal,’” Hammer says. “‘But remember what we went through when we almost all lost our jobs.’”

Bonuses used to be more like a dangled carrot, designed just to get customers in the door. But issuers expect the new, larger bonuses with spending requirements to pull double duty.

“Now the bonus is designed not just to attract you, but to create a behavioral pattern of engagement,” Niestat says. “The purpose behind the spending requirements was to get people in the habit of using the card, in the expectation that it will help it move to the top of the wallet.”

At the same time, issuers carefully monitor their portfolios. It’s not unusual for them to adjust bonuses based on performance.

“Banks don’t always get it right,” Niestat says. “Sometimes the offers turn out to be a little too rich, and that’s why you see banks sometimes dial back their offers after launching them to big fanfare.”

Issuers add even more restrictions

Spending requirements aren’t the only factor making sign-up bonuses less attainable today. Some issuers have added further limitations:

  • Limiting sign-up bonuses to new customers only. Suppose you sign up for the card, get the bonus, close the card and sign up again later. Certain issuers no longer allow you to get that bonus the second time around.
  • Rejecting people with too many applications. Say you’ve been opening credit cards left and right to earn bonuses. Those applications show up on your credit report, and too many might cause some banks to turn you down for a card.

These caveats — and their enforcement — have inspired some complaints. For one, it can be difficult to tell whether you’ve hit the spending requirement on time. Many issuers don’t post your deadline on their online portals. And it’s nearly impossible to compare offers without a calculator handy. A credit card point or mile can be worth between 0.4 cent and 2.3 cents, according to NerdWallet valuations.

These ambiguities can be a source of frustration for consumers. In a 2015 report, the Consumer Financial Protection Bureau noted that sign-up bonuses were the “largest single driver of complaints to the Bureau regarding rewards credit cards in general.”

How to find — and earn — a big sign-up bonus

Earning a credit card sign-up bonus today almost always means spending some money. So be selective about your applications, and make sure you fulfill the spending requirements:

Compare before pouncing. If you have good credit, you have options. Read the offers issuers send through the mail, which are sometimes better than the ones that are publicly available. Use NerdWallet’s pre-qualification tool to see whether you can qualify for a larger-than-usual sign-up bonus. Read about the most lucrative bonuses available. Don’t apply for an offer if meeting the spending requirement means breaking your budget.

Schedule your spending. Issuers often give you three months from account opening to hit a spending requirement. But the clock starts ticking when you see the “You’re approved!” screen, not when you receive the card in the mail. Charging certain big-ticket expenses right after receiving the card — say, airline tickets, membership renewals or annual insurance premiums — makes it easier to hit the requirement on time.

Call and verify. If your issuer doesn’t list the deadline for meeting a card’s spending requirement online, you can always pick up the phone and ask. Knowing is better than guessing.

Claire Tsosie is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @ideclaire7.