how far can one push the signup bonus game?

Question

I have never signed up for cards with signup bonuses with the expectation of canceling, but I am getting curious about it.

The signup bonuses range from $250-500, more if you redeem for travel sometimes. Some of them have annual fees, but often these are waived for the first year. The only requirement seems to be that you spend $3-4k in the first 3 months.

It seems rather incredible. If you just repeatedly sign up, use the card exclusively for 3 months, then redeem and cancel in the 4th month, you could gain $1,500 a year (probably tax free, and even if not you'd pocket $1k).

I don't even think it would hurt your credit too much. You'd take a minor ding from the application inquiry, but you'd also have a minor boost from adding more cards to your record (which would last longer than the ding from the application). The impact is probably negative overall but negligible if you'd otherwise have good credit.

So here are my questions:

1. Would companies eventually notice from your credit report (or otherwise) that you usually cancel after 4 months and stop approving you?

2. Any other bad side effects? For example maybe this would look bad to a human reviewer of a mortgage application?

3. If the annual fee isn't waived in the first year then you'd have to pay it even if you canceled after 4 months, correct?

Overall, what am I missing?

Answer 1

This is commonly called churning, and it can be lucrative but it is some work.
There's gobs of information here: Churning - Reddit and many other resources as well. If you get into it, just be diligent with tracking what you have to spend where and what's due on which cards. Also, it can be easy to negate rewards through increased spending, ie spending $4k to get a $500 reward is a good deal, but not if you would have only spent $3k if not focused on hitting the bonus figure.

Would companies eventually notice from your credit report (or otherwise) that you usually cancel after 4 months and stop approving you?

Yes, there are limits on how frequently you can qualify for the bonus on any given card or group of cards, and there are also limits on how many cards from the same company you can hold in a given period of time. Typically you wouldn't cancel an account prior to the 1-year mark, as bonuses can be recovered if you close the account too early.

Any other bad side effects? For example maybe this would look bad to a human reviewer of a mortgage application?

The primary negative to credit score is the dings from hard-inquiries, people have been churning for years and seen no significant net long-term detriment to score. I probably wouldn't go too crazy if looking for a mortgage in the near future, but I'm not sure that it would actually matter so long as the accounts were all kept in good standing.

If the annual fee isn't waived in the first year then you'd have to pay it even if you canceled after 4 months, correct?

You typically pay at the onset if not waived, but canceling early can trigger reward clawback, so you wouldn't likely cancel early even if they would refund some of the annual fee.

Overall, what am I missing?

Overall, you've correctly identified that these rewards can be used to your advantage, but maybe missed that mechanisms to limit gaming are already in place. There's some great reading on the churning sub I linked above, in particular here's a good write-up: Why you should not begin churning

Answer 2

Credit card issuers know of this game you are talking about. There are various ways from their end to fight that.

1. High threshold for approval.

Prime example - Chase "5/24" rule: Application automatically declined if you have opened 5 or more new credit card account in the last 24 months.

2. Bonus eligibility

e.g. Amex - Can't earn bonus on a card you've already earned bonus before (i.e. once per lifetime).

Some rules go by the card family (e.g. Citi Thank You, Chase Sapphire). Earning bonus on one card in the family (or sometimes merely opening/closing accounts) prevents you from being able to earn another one in the same family for a certain period of time.

3. Bonus clawback

The following language is from Amex T&C

If we in our sole discretion determine that you have engaged in abuse, misuse, or gaming in connection with the welcome bonus offer in any way or that you intend to do so (for example, if you applied for one or more cards to obtain a welcome bonus offer(s) that we did not intend for you; if you cancel or downgrade your account within 12 months after acquiring it; or if you cancel or return purchases you made to meet the Threshold Amount), we may not credit bonus miles to your account. We may also cancel this Card account and other Card accounts you may have with us.

To your questions -

Any other bad side effects? For example maybe this would look bad to a human reviewer of a mortgage application?

Aside from the many hard inquiries you are going to have, not really. Of course, if you game it too hard you might get the dreaded financial review from the card issuers, and they might just shut down everything you have with them and blacklist you. Accounts closed by banks sometimes do raise eyebrows.

If the annual fee isn't waived in the first year then you'd have to pay it even if you canceled after 4 months, correct?

Some card issuers will refund you for a pro-rated amount. Google it and you will see data points.