What is credit card churning?
This controversial strategy involves applying for credit cards with bonus point offers, then cancelling them when you've been rewarded.
The general goal with credit card churning is to earn as many bonus points as possible in a short amount of time, while also keeping your credit card costs down. In theory, as long as you meet the bonus point spend requirements, pay off the balance in full and cancel the card, you can avoid – or limit – the interest charges and annual fees that you’ll face.
While it might sound like a great idea, credit card churning can lead to negative listings on your credit file, impact your credit score and make it harder to get approved for new cards or loans in the future. So, before deciding if you want to collect points through credit card churning, let’s take a look at how this strategy actually works and what risks you’ll face.
While people who have successfully churned credit cards to earn more points usually have their own tips and tricks on what works, they typically follow a version of the steps below:
- Compare credit card offers. Usually, you would start by looking at the current rewards points and travel rewards offers on the market. This helps you find bonus point offers that suit your rewards goals. As well as the bonus point spending requirements, most people that churn credit cards also look for offers that include no annual fee, or, an annual fee that is waived in the first year.
- Apply for the card. Once you’ve chosen one or more cards, carefully read through the eligibility requirements. It can also be a good idea to look at your credit score before you apply, as the more competitive offers tend to require higher scores. After that, you can usually apply online in around 10-15 minutes and if you’re approved, you should receive your card within 1–2 weeks.
- Set calendar reminders. Credit card churning requires precise timing to get the bonus points and avoid extra costs. Most people using this strategy recommend that you set three different calendar reminders: one for the minimum spending deadline, one for your repayment due date/s and one for your card’s anniversary (which is when the annual fee is charged).
- Meet the bonus point spending requirements. While spend requirements can vary between offers, people experienced at credit card churning usually go for offers that have a straightforward requirement, such as spending $3,000 on eligible purchases in the first three months. This is because more complicated requirements can be more time consuming and increase the risk of interest charges or other costs. Check out our full guide to learn more about meeting bonus point spend requirements.
- Pay off the card’s balance in full. To avoid interest charges, you will need to pay off the full amount owed on the card by the due date on your statement. If the spend requirement extends over the course of a few months, you’ll need to make sure you pay off your balance every month.
- Check your rewards account. If you’ve met the bonus point spend requirement, it could take a few weeks before the points land in your rewards account. As a point of reference, most bonus point offers say you should allow six to ten weeks from when you meet the spend requirements. After that, you might want to call your provider to follow up, as it’s important you get the points before cancelling your credit card.
- Cancel your credit card. Once the bonus points have landed in your rewards account, you can cancel the card. The main goal here is to avoid paying the second year annual fee, which would be charged 12 months from when you opened the account.
- Apply for another bonus point offer. If you’re churning cards, you would typically apply for another introductory credit card offer after you’ve cancelled the previous card. Each time you apply, an inquiry is added to your credit file, so some people who churn cards recommend waiting a few months between applications to help space these hard inquiries out.
Sometimes the term “credit card churning” is used in reference to 0% interest rate offers on balance transfers. In this case, you would be churning to get rid of debt without paying interest, instead of churning for rewards points. To do this, you would apply for a balance transfer card and enjoy the 0% APR introductory period before transferring the debt to a new card that also offers 0% interest on balance transfers. The main difference between this and churning cards for points is that balance transfer offers last a lot longer than bonus point offers.
That said, churning for 0% APRs on balance transfers can be difficult in Canada. This is because there are not many 0% offers on the market and most of them are offered by the same provider: American Express. You can’t apply for a balance transfer offer with the same credit card provider – you’ll need to apply with a new provider, which means you might run out of options rather quickly. You may, however, be able to find a few low rate balance transfer offers.
While the promise of thousands of bonus points can make it very tempting to churn credit cards, this strategy comes with some big risks and potential issues – both in the short term and the long term. Some of the pitfalls you may notice early on include:
- Increased spending. Credit card bonus point offers usually require you to spend thousands of dollars within a set amount of time. If this amount is higher than what you usually spend on a credit card, it could have an impact on your budget, lead to interest charges or throw you into a cycle of debt.
- Credit card fees. While some credit cards that offer bonus points may waive the annual fee for the first year, there is a good chance you’ll have to pay account fees for some of the cards you get. This means you’ll need to carefully calculate the value of the bonus points, compare it to the annual fee costs and decide if it’s worth it to get the full value out of churning.
- Credit card debt. Increased spending and account fees also lead to a higher risk of credit card debt. While the goal with churning is to keep rates and fees to a minimum, it often requires careful account management to achieve that. The more cards you get, the more difficult managing your money may become.
One of the biggest potential issues with credit card churning is the way it can affect your credit score. This is because each time you apply for a new credit card, meet the bonus point spend requirements, then cancel the account, you’re adding details to your credit history that could hurt your credit score. Some of these damages include:
- Multiple inquiries from lenders. Whenever you apply for a new credit card (or a different type of credit such as a loan), an inquiry is listed on your credit file. A lot of inquiries in a short amount of time can have a negative impact on your credit score because it suggests you’re shopping around for products. In the worst-case scenario for lenders, it could show someone is desperate for credit, which raises red flags. What’s more, each inquiry can stay on your credit file for around three years, so any potential lenders will be able to see how frequently you’re applying for new credit cards or loan products.
- Decreasing the length of your average credit account history. When you open an account, your credit file will show it as active and record details of any activity, such as repayments, missed payments and defaults. It also shows when an account is closed. While accounts that have been open for a long time and have a good repayment history are usually seen favourably, those that are closed quickly after opening can have the opposite effect. This is because it can suggest instability and a lack of financial commitment.
- Eliminating cards with good repayment history. Depending on the credit card provider, details of your repayments may be included on your credit file. If you regularly pay off your account on time – which is the goal with credit card churning – this is seen as positive information that could improve your credit score. But cancelling those cards once you have the bonus points means that this information is no longer relevant, so it could actually hurt your credit score in some cases.
- Changing credit limits. Every time you open a new credit card account, your credit limit is added to your credit file. Lenders may consider the total amount of credit you have access to when they are looking at new applications. If your access to credit has been going up and down while you open and close accounts, it suggests instability that could hurt your credit score and can damage your chances of getting approved for new credit products in the future.
Credit card churning requires careful planning and management if you want to get the most value out of each bonus point offer. You’ll also need to carefully monitor your credit file and credit score to avoid declined credit applications down the road.
For some people, collecting points that can be used for flights, upgrades and other rewards may be enough to justify the effort involved in churning cards. But if it sounds like a big commitment, then it’s probably better to compare travel rewards credit cards and find one that offers a good mix of bonus points and ongoing features so you can stick with it beyond the signup bonus period.
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