About Getting Clawed Back

Last Sunday, we ran an activity, share your story about getting clawed back. In reality, getting clawed back is very hard to avoid when playing the points-and-miles game. Even the most careful people can have a moment of carelessness or a bit of luck go the other way. But some common clawback situations can still be avoided, so based on everyone’s stories, we’ll pick a few typical cases and talk about how to avoid getting clawed back.

Watch Your Gift Cards

Most people should be pretty familiar with gift cards. Basically, any merchant that’s even a little bit larger will have gift cards. Merchants are very happy to issue gift cards because these prepaid products are essentially free cash flow. And according to surveys, many users either forget to use these gift cards or lose them outright. So if you need to buy gift cards for some reason, make sure to keep them safe and don’t get clawed back. There are two common types of gift cards:

  • Visa, Master, and AMEX gift cards: can be used like a credit card, or in certain cases to buy or load cash equivalents.
  • Merchant gift cards that can be used at the corresponding merchant

For Visa gift cards and the like, since they’re basically equivalent to cash/credit cards, there is a certain chance you can recover them if you lose the card. In general, if you provide information such as the card number, purchase receipt, and activation code, customer service can help lock the card. If they can confirm that you are the cardholder, they may be able to reissue the card for a fee and mail it to you. So my advice is to make sure you keep your purchase receipt, and take photos of both sides as soon as you get the card. Even if you lose it and customer service won’t replace it, you may still be able to use the card online with the card number and CVV. Also, when buying Visa gift cards, you need to be especially careful. Because they are not registered to a name and can be used directly for purchases, some people specifically target this market. For example, they may quietly open some of the packaging in supermarkets that frequently sell Visa gift cards, copy down the card number and other information, and then put the packaging back. Once you activate the card and load money onto it, they simply spend that money online. So when buying, be sure to inspect the packaging carefully and keep the receipt. In short, if you are not a particularly careful person, it’s best to avoid cash-equivalent products like Visa gift cards altogether.

For regular gift cards, the biggest risks are losing them or having them stolen. We’ve written a separate article about stolen gift cards. The best approach is to buy and use them right away, and not stockpile too many. If you buy them for short-term use, make sure not to use secondhand gift card sellers such as Raise Market or eBay.

Credit Card Issuers’ Risk Controls

Everyone keeps following major blogs and forums to learn the ins and outs of playing the credit card game. Banks, meanwhile, are not sitting still either—they’re constantly making things harder for reward seekers. For example, Chase’s 5/24 rule, AMEX’s once-in-a-lifetime welcome bonus rule, and so on. In fact, risk and reward are relative: if you want to use volume or certain bugs to earn outsized returns, you definitely have to take on some risk. Getting all your credit cards shut down may look terrible, but you may have already earned millions of points before that happened. Here are a few things to keep in mind:

  • Know yourself: First, you need to understand your own risk tolerance and never go beyond it. For example, if you buy a large amount of Visa gift cards and cash them out to earn a 5% return, you need to think carefully about the float problem, because if risk controls are triggered and your cash flow breaks, it can be very troublesome. Likewise, when spending to earn welcome bonuses, you should act within your means. Opening a bunch of cards, failing to meet the bonus requirements, and then trying unfamiliar methods to complete them is extremely risky.
  • Know the other side: You need to understand each bank’s policies and risk triggers. Each bank has different sensitivities, priorities, and bottom lines. We recommend reading our risk-control series: Credit Card Issuers’ Account Closures and Risk Controls
  • Slow and steady: For card applications, if you live in the U.S. long term, there’s really no need to be too aggressive. Many cards restrict how often you can earn a welcome bonus. So taking it slow is more suitable for beginners.
  • The early bird gets the worm: If a technique is within your risk tolerance, experienced players should absolutely go all in on the first wave when the return is highest. Once the masses pile in afterward, the route usually dies off quickly...

Cards Closed for Inactivity / Points Expiring / Forgotten Payments

Once you have too many cards, it becomes hard to keep track of everything. Forgetting to pay, having a card closed for inactivity, and points expiring are all very likely to happen. Personally, I think it’s very hard to manage a dozen or even dozens of cards by memory alone. It’s best to use various tools, such as:

  • Credit Karma: free credit reports, and email notifications when a card is closed.
  • Personal Capital: lists each card’s transaction history, due date, and balance so you can review all your cards in one place
  • Award Wallet: manages all your frequent-traveler accounts and lets you see the expiration dates for various points and Free Night certificates

About Opportunity Cost

When playing the credit card game, you really have to think about opportunity cost. Otherwise, what looks like a gain may actually be a loss in a certain sense. For example, the case above of buying a large number of gift cards at 5X and then being forced to use them. On the one hand, gift cards are easy to lose and easy to have stolen or misused; on the other hand, they occupy a chunk of your spending, which means you can’t take advantage of better deals. Another example: if there’s a gap in your card-applying strategy and there aren’t any good cards to apply for, you randomly apply for a card with a $100 welcome bonus. It looks like you made $100, but in fact that $100 bonus could lower your credit score or take up a 5/24 slot, affecting future applications.

Of course, the biggest opportunity cost may be time. Spending a lot of time to chase rewards is very inefficient. That said, if you weren’t going to use that time for anything serious anyway—just browsing websites, checking Twitter, playing games, and so on—then playing the credit card game can still be net positive.