Is the Credit Card Bubble About to Burst?

Update: The Chase 50,000 mile Sapphire offer is no longer available.

It is no secret that for several years credit card companies have been handing out large bonuses to acquire new customers. I have mentioned it before that the normal offer used to be 25,000 miles/points. Now, 50,000 has become the new standard, but we may start to see the trend reverse.

On top of the high bonuses, the card issuers pay affiliates to help and promote their cards. All these upfront costs mean the credit card companies are having to spend big dollars just to get you to use the card. With credit card bonuses on airline or point based models ranging from 25,000 to 100,000 credits just for opening a card, and often a minimum spend to qualify, you can see how the costs to the card issuer can add up.

Therefore, I have wondered if eventually it would all come crashing down? Are all these high acquisition costs sustainable? I think the credit card companies still come out ahead when you factor in the fees they acquire from merchants, and dare I say, if people pay interest on their cards. The card issuer also hopes that you fall victim to habit and continue to use the card, and get used to the perks offered. It all factors into the cost of doing business.

While it is proprietary information how much airlines/hotels sell miles or points to the credit card companies, at even a cent each, they still are shelling out ~$500 on a 50,000 bonus to pay you to use the card. Factor in paying an affiliate to help and promote the card, and in real cost, a credit card company is paying big bucks per new acquisition. That is a lot of money!

Chase pretty much dominates the credit card industry when it comes to offering the most products associated with the travel industry. They also have set the standard on what consumers have come to expect when opening a card. This week we learned Chase is experimenting with a new lower minimum on the Chase Sapphire Preferred card, which may be testing the water for new lower bonus standards. Million Mile Secrets offers an inside glimpse into what could be coming out of Chase over the next year.

I am not a big fan of some other travel bloggers rushing to claim the 40,000 mile offer is on Chase’s website, yet if you go directly to the Chase website and search for the Sapphire Preferred card, it clearly shows up as the 50,000 point offer. Maybe it was a temporary fluke on Chases end, or a prediction of what is to come, but as of right now both the affiliate and direct links still work for the 50,000 point offer. I think there may have been a jump to get ahead of everything.

The reduced credit card bonus does not surprise me at all. Chase did the same thing last year with the Southwest credit card, where they offered a 50,000 point bonus to the general public, which was reduced back to the standard 25,000 point bonus. The 50,000 bonus is still available via targeted promotions, but there is a chance the above link also works. Be sure to take screen shots during the application process in case you need to prove you applied for the 50,000 offer.

So the point being is that Chase has finally started to realize that while they have a market share of customers, it also has come at a substantial cost. As the markets start to improve, I would look for credit card bonuses to possibly start to fall off through Chase. Others, like American Express (AMEX) and Citi, I would expect to possibly start improving their offers if they expect to stay competitive with Chase. Then again, these opinions are strictly my own, and I am not the one sitting around the marketing board room meetings.

It is not to hard to imagine racking up hundreds of thousands or even a million miles over the course of a year just by opening some credit cards. For the sake of comparison, I have drafted the following table to look at the current credit card offers in comparison to recent previous offers as well as where they may be headed.

Product	Bonus	Minimum Spend	Annual Fee	Previous Best Offer
Chase Southwest Rapid Rewards	25,000 miles	After first purchase	Annual fee $69 (not waived)	50,000 miles
Chase Sapphire Preferred	50,000 Ultimate Reward Points (Est. $625 Value)40,000 points	$3,000 in 3 months	First year annual fee waived; $95 thereafter
Marriott Rewards (Chase)	30,000 points + 2 free stay nights at a category 1-4 hotel.	After first purchase	First year annual fee waived; $45 thereafter	22,500 points and a free hotel stay; there is also a 50,000 point + 1 free stay Premier version of the card available.
United MileagePlus Explorer (Chase)	See link for latest offer	After first purchase	First year annual fee waived; $95 thereafter	50,000 mile targeted offer via United.com with miles in account
Delta Gold (AMEX)	30,000 miles	$500 in 3 months	First year annual fee waived; $95 thereafter	25,000
Delta Gold Business (AMEX)	30,000 miles	$500 in 3 months	First year annual fee waived; $95 thereafter	25,000
Starwood Preferred Guest (AMEX)	25,000 miles (10,000 after first purchase + 15,000 after $5,000 in 6 months)	$5,000 in 6 months	First year annual fee waived; $65 thereafter
Starwood Preferred Guest Business (AMEX)	25,000 miles (10,000 + 15,000 after $5,000 in 6 months)	$5,000 in 6 months	First year annual fee waived; $65 thereafter

The Chase Sapphire Preferred card is experimenting with a new 40,000 bonus offer directly on their website, although I still saw the 50,000 point offer available. Reduced bonuses directly through card issuers could mean that the 50,000 mile available through affiliates (see link above) may be going down in the near future. What I have been seeing, and what may continue, is that the big credit card bonuses may be coming to an end as Chase and others look to cut their marketing costs in 2012.

That does not mean people need to rush out and get all these and other credit cards before they disappear. On the contrary, everyone needs to look at their unique credit decision and determine if opening up new credit cards is worth it for your family. By using airline, hotel, and other reward programs, and smartly managing credit, our family has been able to save thousands of dollars on our travel expenses.

Please note I do not promote trying to open every single one of these cards, or any other cards all at the same time. Opening new cards need to be timed to minimize impacts to your credit files, as well as allow you to meet the minimum spend on cards. Chase, for example, is not going to allow you to necessarily open 2 or 3 different cards all at the same time without justifying to them why you need so much credit at once. Typically, it is more acceptable to wait about 90 days before your next round of credit cards. It is not to say opening several cards from the same issuer at once can not be done. If you time it out every 90 days though, you may be able to open 3-4 personal cards, and 3-4 business cards per issuer, per year if done correctly.

Our family tends to be a lot more conservative with opening new cards than most, although now that we have no large purchases in our near future, we may start experimenting more. The last cards we opened was the Chase Continental cards last November, and before that, it was at least a year prior when we opened up United Mileage Plus cards. However, we will be opening up new lines of credits in the future to help build back up our accounts.

Save Money, Travel More!

Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.