Can a Credit Card Company Take Away My Sign-Up Bonus?

Sign-up bonuses are one of the sweetest parts of getting a new credit card. These bonuses dish out points, miles, or cash back when you hit certain spending requirements within a specified timeframe, like spending $500 within three months. It may seem like free money -- or at least rewards with no strings attached -- but read the fine print carefully, as there might be hidden strings that can pull that bonus back.

Truth is, credit card companies have complete control over the rules governing your sign-up bonus. And, yes, in some cases, a credit card company might rescind your bonus. If you've earned a sign-up bonus recently, here's how you might lose it.

You might lose your bonus if you cancel or downgrade your card too early

By and large the most common way to have your bonus revoked is to cancel or downgrade a credit card shortly after you receive your bonus.

This is often the case with cards that have annual fees. Since these cards often have bigger welcome bonuses, credit card companies are sensitive to short-term cardholders. They know some card users will try to game the system, earning the bonus only to cancel the card (or downgrade to a no fee version) before the next annual fee is due.

To prevent this, some credit card companies will revoke your welcome bonus if you cancel or downgrade within 12 months of getting your card. For example, here's the fine print for the American Express® Gold Card:

"If we in our sole discretion determine that you have engaged in abuse, misuse, or gaming in connection with this offer in any way or that you intend to do so (for example, if you applied for one or more cards to obtain an 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, we may freeze, or we may take away the Membership Rewards® points from your account. We may also cancel this Card account and other Card accounts you may have with us."

That last part is worth explaining. You could also have your bonus revoked if you return purchases that helped you meet the spending threshold. For example, if you purchased a $1,000 sofa to meet a $6,000 spending threshold for a $750 bonus, your credit card company may rescind the bonus if you returned the sofa. This wouldn't be the case, however, if you surpassed the spending threshold by more than $1,000, as the return would still put you at above $6,000.

How to avoid having your bonus revoked

As long as you play by your credit card company's rules, your bonus likely won't be revoked. In particular, do the following to prevent this from happening.

• Read the fine print carefully. If it's a card with an annual fee, be sure you know how long you must hold on to the card before you can safely cancel or downgrade it.
• Meet the spending requirements by a wide margin. Credit card companies are pretty rigid. If you return a purchase that helped you meet the requirements to earn a bonus, it's safe to assume they will come after your bonus, even if you return the item months later. If you can, give yourself some wide margins to allow yourself to make necessary returns, if needed.
• Don't cancel your cards before 12 months. Even if a company doesn't explicitly state that it'll claw back your bonus with an early card cancellation, your card issuer could still take action if it suspects you're gaming the system, like closing your account or denying you cards in the future.

To be sure, there's nothing wrong or illegal with earning credit card bonuses. Problems only arise if you break a company's rules or are suspected of "churning," that is, opening new credit cards just to earn bonuses. Play it safe by getting credit cards you actually want, then keeping your account open long enough for you to enjoy the rewards.