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What is credit card churning?

This controversial strategy can hurt your credit score if you're not careful.

The idea behind credit card churning is to earn as many points as possible in a short amount of time. You achieve this by applying for a card, meeting the signup bonus spend requirements, earning the bonus and then canceling the card. You repeat the process with the next card.

This may sound like a great idea but credit card churning can lead to negative marks on your credit history, it impacts your credit score and makes it harder to get approved for new cards or loans in the future. Before you even consider trying this strategy, be sure to have all the information and an idea of how it could negatively affect you.

How does credit card churning work?

While people who have successfully churned credit cards to earn more points usually have their own tips and tricks on what works, they usually follow a version of the steps below:

  1. Compare credit card offers. Start by looking at the best reward and airline 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 who churn credit cards also look for offers that include a $0 annual fee in the first year.
  2. Apply for the card. 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 15 to 20 minutes. You should get your card in up to 10 days if you’re approved.
  3. Set calendar reminders. Credit card churning requires precise timing to get the bonus points and avoid extra costs. So, most people using this strategy recommend that you set three different calendar reminders: one for the minimum spending deadline, one for your due date and one for your card’s anniversary, which is when the annual fee is charged.
  4. 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 in the first three months of card membership.
  5. Pay off the card’s balance. To avoid interest charges, you would need to pay off the full amount owed on the card by the due date on your statement. If the spend requirement goes over a few months, you’d need to make sure you do this each month.
  6. Check your rewards account. If you’ve met the bonus point spend requirement, it could take up to eight weeks before the points land in your account. After that, you might want to call your provider to follow up, as it’s important you get the points before canceling your credit card.
  7. Cancel your credit card. When you see the bonus points 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.
  8. Apply for another bonus point offer. If you’re churning cards, you would typically apply for another introductory credit card offer after you canceled the previous card. Each time you apply, an inquiry is added to your credit history, so some people who churn cards recommend waiting a few months between applications to help space them out.

What about credit card churning for balance transfers?

Credit card churning used in reference to 0% interest balance transfer offers means, you would get a balance transfer card and use the introductory period to save money on interest. Once the intro period expires, you move your remaining debt to a new card that also offers 0% intro APR. The main difference between this and churning cards for points is that balance transfer offers last a lot longer than bonus point offers.

Potential risks of credit card churning

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 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 or lead to interest charges.
  • 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 that may become.

Credit card churning and your credit score

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 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. This includes:

  • Multiple inquiries from lenders. Whenever you apply for a new credit card, the card issuer makes a hard pull on your credit. 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. Each inquiry can stay on your credit history for up to two years, so any potential lenders will be able to see how frequently you’re applying for new credit cards.
  • Decreasing the length of your average credit account history. While accounts that have been open for a long time that have good repayment history are usually seen favorably. Those that are closed soon after opening can have the opposite effect. This is because it can suggest instability and a lack of financial commitment.
  • Eliminating cards with good payment history. 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 canceling 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 report. Lenders consider the ratio between your available credit and your debt. Every time you open a new card, your new credit limit is added to your utilization rate and it positively affects your score. The opposite is also true — close your account and you lose your available limit, thus increasing your utilization rate.

Bottom line

Credit card churning requires careful planning and management if you want to get the most value out of each bonus point offer. For some people, collecting points that can be used for flights, upgrades and other rewards may be enough to justify the effort.

But if it sounds like a big ask, then it’s probably better to compare reward credit cards and find one that offers a good mix of bonus points and ongoing features so you can stick with it beyond the honeymoon period.

Images: Shutterstock

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