Dan Sweet

Minimum incentive to open a new credit account?

I wrote this recently in reply to a question posted on Quora.com.  If you haven’t checked out Quora yet, go check it out.  Quora is a great example of a business model based on Clay Shirky’s concept of cognitive surplus.  I like the execution because they make it easy to share your knowledge and also make it social enough that it motivates people to contribute more.

Q: If a merchant offers you a discount when you apply for their credit card, how much should it be worth to go for it?

Short answer: minimum $100 offer value
Long answer:
3 filters to use
1 – What is your current credit score?
2 – Are you getting a major loan (house, car, boat, etc) anytime soon?
3 – Are you making a larger purchase from this vendor in the future?

If the answer to 1 is “I don’t know” then just say no to all of these offers in general.  Go to a site like creditkarma.com and check your credit for free without a “hard” inquiry.  “Hard” and “soft” exist.  Google it if you don’t know the difference.  If your score is 700+ then proceed to question 2.

If the answer to 2 is “yes”, then you should also just walk away.  $100 or whatever isn’t worth a few extra hundred in interest on that new loan because you dropped your score just under 720 with some dumb “offer” you “took advantage of”.  If the answer to 2 is “no” then proceed to question 2.

Many of these offers are one-time offers only good at that store on the initial purchase when the card is opened.  This is where question 3 comes in.  For example, 5 years back I bought a furniture set at Macy’s signed up for a card and got 20% off.  $2-300 in my pocket.  Yesterday I asked about a coupon that was valid only for Macy’s cardholders.  My account had gone inactive but, no problem sir we’ll open it right back up for you and you’ll save $14.  No thanks, I am thinking about some new furniture down the road.  Probability I buy furniture from Macy’s again * expected value of future deal > $14 so this is a pass for me.  You do the calculations for your scenario.

If its not a one-time deal with a vendor, you have decent credit, and no plans for major new loans in the works, then go to town.  It will impact your credit if you do a number of these.  For that reason, I don’t do these for less than $100 as plenty of them come along.

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