One Mile at a Time says if you’re going to apply for a rewards credit card do it soon – like this week. He suggests,
- We may see lower bonuses, as issuers spend less money to acquire customers
- We may see some products stop taking applications altogether
While Lucky offers some reasons to believe banks may be less generous, I’m actually going to go a bit further in the analysis.
He says “we’re essentially in limbo, and nobody actually knows what’s going on anymore.” Companies are cutting spending and I’d add that includes marketing spending except where it’s contractually required (and then then…). Second quarter budgets may be delayed or slashed. And then he posits this,
Many credit card issuers are giving people the opportunity to delay making payments, and I imagine in some cases they’re suddenly going to see a lot more people financing purchases, which may throw off some projections
It’s not simply that projections will be thrown off. Let’s be clear. A lot of people are becoming unemployed. To a credit card issuer that means late payments and eventually chargeoffs.
The reason banks sometimes reduce credit lights, and tighten lending standards, in a down economy is because there is more repayment risk. This reduces their exposure to bad debt.
So it’s not just that we could see less attractive bonuses – that’s not a foregone conclusion, but there may be a pause in big bonuses for travel companies while travel is so limited – but we may see tightened approval standards. In other words it may become more difficult to get approved for cards.
I’m still excited for the long term of rewards cards. Thanks to the government’s money printer go brrr right now the cost of credit to banks is unbelievably low. So as soon as there’s a better handle on risk we could be in for a wild rewards card ride. Remember that it was during the Great Recession that we saw the first 100,000 mile initial card bonus.
I’m curious to hear experiences of readers, have you been applying for cards and if so what were your results? Anything that’s surprised you? We don’t have broad industry-wide data yet to know what’s going on but it would be great to get data points on where things are going.