Credit card sign-up bonuses: how welcome offers work and how you lose one

How does a credit card sign-up bonus work?

You open the card, spend a set amount on purchases before a deadline, and the issuer posts the bonus weeks later. Miss the deadline and you get nothing.

The CFPB describes sign-up bonuses as lump-sum incentives for people who reach a certain level of spending within a set number of months after opening a card ^[1]. On both Chase card pages we read, the window was the first 3 months from account opening. Chase says to allow 6 to 8 weeks for the bonus to post, and the account has to be open and not in default when it's paid ^[2][3].

The bonus can come as cash back, points or miles. These bonuses now make up almost one in ten dollars of all rewards earned, the CFPB says, and closer to one in five for people with below-prime scores ^[1].

Which purchases count toward the spending requirement?

Everyday purchases, minus anything you return. Balance transfers, cash advances, cash-like transactions and fees usually don't count.

Chase's terms spell out what isn't a purchase: balance transfers, cash advances, cash-like transactions such as money orders, wire transfers and cryptocurrency, betting, person-to-person transfers, interest, and fees of any kind, including an annual fee ^[2]. Purchases made by an authorized user do count on those terms ^[2].

The CFPB says banks often reverse rewards after a return or dispute and cut the spending credited toward the requirement ^[1]. In one complaint it quotes, a $20 return left a cardholder $10 short of the total. The CFPB also says issuers typically don't count cash equivalents like gift cards ^[1].

Who can't get a card's sign-up bonus?

Each issuer writes its own rules. Common ones exclude people who have the card now, had it before, or got its bonus within a set number of months.

The rules live in the offer terms, so read them before you apply. The CFPB calls a limit on how many times someone can earn a bonus a common restriction. Some people told it they met the spending and only found out months later that they'd never been eligible ^[1].

Issuers can look past the card itself, too. Chase says it may consider how many cards you've opened and closed, and Citi says it may weigh your history of opening, closing and using cards ^[3][4]. The table below quotes the wording from three issuer pages.

Can a credit card company take back a sign-up bonus?

Yes. Issuers can reverse a bonus over returns or what they call abuse, and some take rewards back if you close or downgrade the card early.

Some issuers' terms include catch-all language that lets them revoke an offer if your account looks like gaming or abuse, the CFPB found, and those words are rarely defined ^[1]. The pattern issuers are guarding against is churning: opening a card, meeting the spend, taking the bonus and cancelling ^[1].

People told the CFPB that at least one issuer made them pay back a bonus after they closed the card within a set period. One quoted term read: "if you cancel or downgrade your account within 12 months ... we may take away" the credit ^[1]. Some programs also forfeit rewards when an account closes, and every quarter 4% of accountholders lose access to at least some of their rewards, the CFPB says ^[1].

Read the terms before you close or downgrade a card in its first year. The credit side of that decision is in closing a credit card.

Are credit card sign-up bonuses taxable?

Usually not if you had to spend to earn them. CardRatings says the IRS treats those as a rebate. A bonus that needs no spending may be taxable.

The IRS's guide to taxable and nontaxable income, Publication 525, doesn't mention credit card rewards by name. The closest rule in it covers a cash rebate from the dealer or manufacturer of something you buy, which isn't income ^[8]. CardRatings says the IRS treats rewards you earn by spending as a rebate, so you don't report them, while some bonuses that require no spending count as taxable ^[7].

Getting a Form 1099 from an issuer doesn't automatically make a reward income, CardRatings says, but it's a reason to check ^[7]. A tax professional can tell you how your own bonus is treated. This page isn't tax advice.

Does applying for lots of cards for bonuses hurt your credit?

Each application adds a hard inquiry, which costs most people under five FICO points. Several new accounts in a short span also read as higher risk.

myFICO says one more inquiry takes less than five points off most people's FICO Scores. FICO counts inquiries for a year, they stay on the report for two, and they weigh more if you have few accounts or a short history ^[5]. FICO groups rate-shopping inquiries for loans like mortgages, auto loans and student loans ^[5]; that page doesn't extend the grouping to cards. More in hard inquiries.

New credit makes up 10% of a FICO Score, and myFICO says opening several accounts in a short period represents greater risk, especially for people without a long credit history ^[6]. Issuers keep count as well: the Chase and Citi terms above both mention your history of opening and closing cards ^[3][4].