Opening a New Credit Card for the Sign-up Bonus

Many of us receive offers in the mail every week to open up new credit card accounts. Sometimes these offers come with a bonus for signing up for a new account. Often this bonus is a preferable interest rate (potentially even a 0% rate) for any existing credit card balances that you transfer into the new account. For credit cards that have a rewards program, a common sign-up bonus is to award a fixed number of miles or points for opening a new account.

The prospect of a low or 0% interest rate (or getting thousands of points or miles in a rewards program) is certainly an attractive one. But before you open a new credit card account just for the sake of getting the bonus, there are some additional factors you need to consider.

Here is some credit card advice to take into consideration if you are thinking about opening a new credit card for the sign-up bonus.

• New Credit Card Fees. Take a look at the fees that are associated with the new credit card. Look at the annual fee, as well as any ongoing fees (including the interest rate for new charges you make on the account). If the new card program is more costly than your current credit card, then opening the new account might not be such a good deal.
• How Much Could You Save? If the sign-up bonus is a 0% interest rate (or a rate that’s lower than your current rate) for any balances you transfer to the new account, then calculate how much you might save by making the switch. Be realistic in how long you think it will take you to pay off that balance, and how much you could save in that time.
• How Long Does the Bonus Last? Pay attention to how long the credit card sign-up bonus lasts for, and what happens when the promotional period ends. You might get a 0% interest rate for six months on any balance transfers, but after that the rate might spike up to a level that’s much higher than your current card. If the balance is one that would take you longer to pay off than the bonus period lasts, then you won’t save quite as much in interest charges.
• Other Recent Credit Activity. Because your credit score is calculated using a number of factors, including how many times you’ve applied for new lines of credit, you might not want to open a new account if you have lot of other recent credit activity. If it turns out that opening a new account in order to get the sign-up bonus lowers your credit score, then any savings you get from the new card might be wiped out from extra fees and interest you might pay when it comes time to apply for a loan for a new car or home.

Be sure to consider all of the effects of opening a new credit card account will be when you’re thinking about trying to chase the sign-up bonus. If it ends up costing you more than you save, then you might want to steer clear.