Like with anything involving finance, there is no one-size-fits-all method when it comes to signing up for credit cards. However, there are tips, tricks, best practices, and even some rough guides for beginners. Like this one! If you’re asking yourself why you should devote so much time to figuring out what credit card to sign up for, check out my post, Traveling for “free”: The Big Idea, to learn more about how this whole “free travel” thing works.
Step 1: Understand how credit works and know your Credit Score.
- Put simply, credit is money that you have access to borrow based on the promise to pay it back.
- Credit lenders need to know who is trustworthy, so they rely on companies called “credit bureaus” to tell them who is “creditworthy”.
- The most commonly used credit score model is a 3-digit number (called a FICO score) that is calculated by these credit bureaus and gives a general idea of how creditworthy you are. The factors that go into this number and how much they are weighted are:
- How varied your accounts are – auto loan, utilities, mortgage, credit cards, etc. (10%)
- Number of recently opened accounts. (10%)
- Average age of accounts and length of credit history. (15%)
- How much you owe rated against the total amount of credit you have access to. (30%)
- The most important one: Your payment history or how well you’ve paid off your debt on-time. (35%)
- Your FICO score ranges from 300 to 850. Generally speaking:
- Under 650 means your credit needs a lot of work. You will probably need to start with a secured credit card (almost like a debit card) to start building credit.
- 650-700 means you’re okay, but could definitely stand to be better. You may only qualify for entry-level credit cards that don’t have big bonuses or perks.
- 700-750 means you’re pretty solid. You should qualify for most if not all cards.
- 750+ means you’re great! You should* qualify for any credit card out there.
*Note: “Should qualify” does not necessarily mean “will be approved for”. Many other factors go into whether or not a bank will approve you for a credit card.
There are many ways to check your credit score for free. Sites like Credit Karma or Credit Sesame provide credit scores for free without affecting your score at all. Some credit cards even include free credit score updates.
Step 2: Have a goal in mind with your credit card sign-ups.
Redeeming bonuses for cash is rather simple. However, if you have travel in mind, there are a number of questions you want to have answers to before jumping into your first or next credit card:
- Do you want to travel domestically? Internationally? Both?
- Is there a specific trip you’re planning for or are you fine with earning without a specific redemption in mind?
- Are you interested in premium travel like 5-star hotels and business/first-class flights? Or would you rather stretch your dollar and opt for more trips versus bigger trips?
- Do you already have a stash of frequent flyer miles or hotel rewards points that you’d like to add to?
Apply according to your goals and perform due diligence to make sure the card you’re signing up for is the best of all your options.
Step 3: Research current sign-up bonuses
A quick Google search will lead you to a number of sites that provide complete lists of up-to-date credit card information that you can use to determine the best card and sign-up bonus for you. Many bloggers, myself included, will post referral links that give us a bonus when someone is approved for a card when applying through our link. The referrals themselves do not hurt your chances of approval. However, beware of using referrals that don’t offer you the best available sign-up bonus.
Step 4: Know credit card company application rules.
This is the most complicated of the bunch, so I’ll keep it brief and limit it to the “Big 3”.
Chase
- 5/24: Put simply, the 5/24 rule is that you will almost surely be denied for most Chase credit cards if you have signed up for 5 or more personal credit cards (from any bank – not just Chase) in the previous 24 months. I say most because certain Chase cards are not subject to this rule and I say personal because business cards are generally not reflected on your personal credit report.
- While not set in stone, it’s understood that you will not be approved for more than 2 Chase credit cards within a 30 day period.
American Express (AMEX)
- AMEX will will not approve you for more than 2 credit cards within a 90-day period. This rule does not apply to their charge cards, which are cards with no true credit limit whose balances are expected to be completely paid off each month.
- You are only allowed 5 AMEX credit cards at a time. Charge cards are also exempt from this rule.
Citi
- 8/65: Don’t equate this to Chase’s 5/24. Citi’s 8/65 rule means you can only be approved for one card every 8 days and two cards every 65 days.For example, if you apply for a Citi card today, call today “Day 1” – don’t apply for a 2nd card until Day 9 or a 3rd card until Day 66.
Because Chase’s rules are the strictest, it’s generally agreed upon that they are the best place to begin. If you don’t already have it, the Chase Sapphire Preferred is a great starter card for someone that already has a bit of good credit history under their belt. Its current sign-up bonus is 50,000 Ultimate Rewards points after spending $4,000 on the card in your first 3 months. the $95 annual fee is waived for your first 12 months. 50,000 points is worth $500 in cash, $625 in travel through their website, or potentially more when transferred to an airline and used as frequent flyer miles. Note that you will not be eligible for this bonus if you already hold any card in the Chase Sapphire line (Chase Sapphire, Chase Sapphire Preferred, Chase Sapphire Reserve) or have received a new cardmember bonus from any Sapphire card in the previous 24 months.
For those with more fledgling credit, the Chase Freedom and Chase Freedom Unlimited cards each currently offer a 15,000 Ultimate Rewards point bonus ($150 cash) after spending $500 in your first 3 months, with a 2,500 point bonus for adding an authorized user and making a single purchase in the same 3 month period. Neither of these cards has an annual fee and they are great for building your credit.
These are overlying application rules, but rules involving eligibility for sign-up bonuses are more convoluted. Some bonuses can only ever be earned once, some require that you haven’t received that bonus for a certain period of time, and you can become ineligible for a bonus by already having a similar card from the same bank. Be sure to look at the terms & conditions of a bonus before applying, as it is possible to be approved for a card and not be eligible for its sign-up bonus.
*Note: Using the links above provides me with a referral bonus that doesn’t affect your approval chances or bonus in any way. You don’t have to use my links, but I’m very grateful when you choose to.