3 Times It Doesn't Pay to Chase a Credit Card Sign-Up Bonus

Don't let your quest for a new cardmember bonus backfire.

Many credit cards come with generous sign-up bonuses for new customers. These sign-up bonuses can enable you to earn free trips or hundreds of dollars in cash back rewards.

While there are many situations where it can make sense to sign up for a card to earn a valuable new cardmember bonus you're excited about, there are also times when doing this could backfire. In particular, here are three situations when chasing a credit card sign-up bonus isn't a good idea.

1. If you'll be applying for a big loan soon

Opening up a new credit card to qualify for a sign-up bonus means getting an inquiry on your credit report. This can lower your credit score, especially if you have several recent inquiries already. You will also reduce the average age of your credit accounts when you add a new one to your credit record. This hurts your score too.

If you'll be applying for a large loan, such as a mortgage or car loan, you don't want to take this hit to your credit before doing so. The sign-up bonus wouldn't be worth the possibility that you'd be denied a loan or have a narrower choice of lenders due to your lower score.

It's also not worth the chance that your rate could be even a little higher due to the recent debt, since small differences in interest rate can add tens of thousands of dollars to your borrowing costs when you take out a large loan you pay back over a long time.

2. If you've opened too many credit cards recently

Some credit card companies will deny you the ability to open a card if you have opened too many new ones recently. If you've opened a lot of cards, you may not want to try for another one soon after. That's because you could be denied and would get an inquiry on your credit record but not end up with the sign-up bonus. You could also be narrowing your options in the future if an even better sign-up bonus comes along but you won't qualify because you've recently opened new cards.

If you've opened up several cards in the past few years, wait until a truly unbeatable bonus comes along, rather than chasing any sign-up bonus that looks decent.

3. If you probably won't hit the spending requirements

New cardmember bonuses can't just be earned by opening a card -- you also have to meet spending requirements. For example, you may have to spend $1,000 within the first three months of opening the account in order to be eligible for the bonus rewards, miles, or cash back.

If you cannot meet these spending requirements, you won't end up with the extra rewards for opening the card. So even if the sign-up bonus may look great on the surface, it's not worth trying to get it if you aren't confident you can qualify to earn it -- or if doing so would force you to spend more than you can comfortably pay back.

Ultimately, you should look at the big picture of your current and future borrowing needs and let that guide you to whether chasing a particular sign-up bonus makes sense right now or whether it's better to wait.