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Credit card advice is often summed up thusly: “Be responsible. And for many, that means keeping their card usage relatively conservative and only carrying one or two, if they carry any at all.
However, there is a seductive world of credit card rewards, perks, and perks out there, and credit card “churners” have a slightly different perspective than the typical user. Every year, they open and close credit cards numerous times, earning various forms of rewards such as points, miles, and cash back in the process. And in some cases, they test the limits of the rules that card issuers set for their products.
It can be very profitable, but it can also be dangerous and need a lot of effort, commitment, and, most importantly, planning. And as with any credit card strategy, responsible use is still key.
Credit card churning is not the act of throwing your credit cards into a blender (although that would be an interesting sight). Churning refers to the deliberate opening and closing of credit cards in order to optimize bonus points and cash back in the rewards world. Similar to the board game Musical Chairs in terms of finances, but with plastic in place of wood
But is it worth it? Let’s dive into the nitty-gritty of credit card churning and see if it’s the right move for you,
What Exactly Is Credit Card Churning?
Churning is all about exploiting welcome bonuses. Card companies love to entice new customers with juicy rewards, like thousands of miles or hundreds of dollars in cash back. Churners take advantage of these offers by applying for multiple cards meeting the minimum spending requirements, and then closing the accounts before annual fees kick in. It’s like a revolving door of credit cards with the churner always on the lookout for the next best bonus.
Here’s how it typically works:
- Find a card with a lucrative welcome bonus. This could be a hefty chunk of miles, points, or cash back after meeting a specific spending requirement within a set timeframe.
- Apply for the card and get approved. Make sure you meet the eligibility requirements and have a good credit score.
- Meet the minimum spending requirement. This usually involves charging a certain amount to your card within a few months.
- Earn your welcome bonus. Once you meet the spending requirement, the bonus points or cash back will be deposited into your account.
- Close the card before the annual fee hits. This is crucial to avoid paying unnecessary fees and maximize your profit.
- Repeat the process with a new card. Once you’ve closed one card, move on to the next one with a tempting welcome bonus.
Sounds simple enough, right? But there’s more to it than meets the eye.
The Risks and Rewards of Churning
Churning carries some risk but can be a profitable way to accumulate rewards. Here are some things to consider:
The effect on your credit score: Regularly opening and closing accounts can have a bad effect on your credit score. Hard inquiries from new credit applications may result in a brief decline in your score, and closing accounts may shorten your credit history.
Possibility of account closures: Card issuers are savvy about churners and might terminate your accounts if they believe you’re not making responsible use of the card. This may lower your credit score and increase the difficulty of getting future card approvals.
The time commitment: Churning requires research, planning, and organization. To prevent missing deadlines or paying unnecessary fees, you must stay on top of application deadlines, spending requirements, and annual fees.
The potential for rule changes: Card issuers are constantly changing their policies, including welcome bonus offers and rules around churning. Staying informed about these changes is crucial to avoid getting caught off guard.
Despite the risks, churning can be a rewarding strategy for those who are willing to put in the effort. If you’re a savvy credit card user with a good credit score and the time to manage multiple accounts, churning can help you rack up significant rewards that can be used for travel, merchandise, or even cash back.
But before you jump into the churning game, make sure you understand the risks and weigh them against the potential rewards. It’s important to be strategic and responsible to avoid hurting your credit score or getting your accounts closed.
Remember, churning is a marathon, not a sprint. It takes time and effort to see significant results, so be patient and don’t get discouraged if you don’t see immediate returns.
So, is credit card churning right for you? It depends on your individual circumstances and risk tolerance. If you’re a responsible credit card user with a good credit score and the time to manage multiple accounts, churning can be a lucrative way to maximize your rewards. But if you’re not comfortable with the risks or don’t have the time to commit, it’s best to stick to using your cards responsibly and earning rewards naturally.
How churning can affect your credit
The harm that credit card churning can do to your credit is one of the main risks involved. This is due to the fact that, if you’re not careful, the actions you’ll need to take in order to receive the best rewards—opening numerous cards and making regular purchases on them—may have a negative impact on your credit scores.
For instance, the quantity of new credit accounts you have opened recently determines a comparatively small portion of your credit scores. As a general rule of thumb, wait six months between credit card applications as doing so may indicate to lenders that you are in financial distress and thus a risky bet.
Not everyone is affected by that; people with excellent credit and high scores might not have to wait as long. That’s the reason, however, that churners typically apply for multiple new cards in a single day and then wait several months to apply for more.
A larger percentage of your credit score hinges on your credit utilization ratio. This measure examines the amount of credit you have available and the amount you are using; the lower the ratio, the better. This has two advantages: if you have several credit cards, you probably have more credit available overall, which means you could have a higher potential credit utilization ratio — provided, of course, that you pay off your bills in full each month and don’t have any high balances.
However, until you settle those balances, your credit scores will suffer if you’re using several credit cards to accumulate debt in order to receive one-time sign-up bonuses.
If you’re managing so many credit cards that you forget to make a payment, that’s another way churning could damage your credit. On-time payments are the biggest factor in your credit scores.
Your likelihood of forgetting to pay a bill by the due date rises if you use multiple credit cards in order to accrue as many rewards as possible. Although you can be extremely cautious, it can still be easy to get burned here. Setting up alerts and auto-payments can help.
Lastly, closing your credit cards can negatively impact your credit score in two more ways: the credit utilization factor mentioned above and the average age of your accounts. It’s usually preferable to just stash a credit card in a sock drawer rather than closing it so you can keep the credit line and history.
Of course, that calculus may change if a card you dont use is charging you an annual fee. If that’s the case, though, you might try to reduce your credit card to a no-annual-fee model and maintain your credit line and history with the same card number. This is known as a “product change,” and its a strategy many churners employ.
What is credit card churning?
Put simply, credit card churning generally works like this:
- You find multiple credit cards with rewards currencies (like airline miles) that you want to use, along with a sizable sign-up bonus that gives you a sizable portion of those rewards up front.
- You apply for those cards, and after you get them, you make sufficient purchases to earn extra miles or points.
- After that, you cancel and cease using the cards, sometimes even before you have to pay the annual fee. (Many annual fees are waived in the first year. ).
- Repeat the process.
Churners are able to accumulate rewards more frequently than they would if they stuck to one or two cards and gradually accumulated a points stockpile through ongoing spending rewards because of those generous upfront bonuses.
Some churners are so committed that, by simply using the appropriate credit cards, they are able to receive numerous freebies, such as vacations, hotel stays, or just cash, a few times a year.
But this strategy isn’t right for everyone. In fact, there are serious pitfalls that churners can fall into if they’re not careful.
Is Credit Card Churning a Smart Financial Strategy?
FAQ
Is churning bad for your credit?
How does churning work?
Does credit card hopping affect credit score?
What do we get by churning card?
What is credit card churning?
Credit card churning is the process of opening cards for the sole purpose of earning welcome bonuses or other benefits. Usually, it involves closing cards after the bonus posts to your account and before the next annual fee is charged.
Should you churn your credit card?
To them, churning is somewhat of a dirty word. The most profitable credit card customers get a card, don’t pay attention to the extra benefits, carry a balance and pay interest and annual fees for many years. When churning credit cards, the goal is often the exact opposite.
How much is a credit card churning bonus worth?
Credit card issuers routinely offer exciting welcome bonuses to attract new applicants. Offers on the best credit cards can be worth $1,000 or more if redeemed for maximum value. While an average person might open one credit card a year — or one every few years — credit card churning involves opening multiple new cards in quick succession.
Is churning a credit card illegal?
Churning isn’t illegal, but it is controversial and sometimes leads to repercussions by card issuers. Before credit card issuers put systems in place to stop the practice, churners would open multiple credit cards in quick succession, earn the intro bonus for each new account and then close or stop using the cards.