What Is Credit Card Churning?

If you keep an eye on credit card rewards and love finding innovative ways to save, you might have heard of credit card churning. Churning is the process of opening and closing multiple credit cards to earn the reward bonuses over and over again. While this may seem like a reasonable way to earn rewards, it can also have an impact on your credit that you didn’t expect.

How Does Credit Card Churning Work?

Card churning starts when you identify a card with an appealing award bonus – typically airline miles or cash back on purchases. After getting approved for the card, you usually need to spend a specified amount of money in a given time period to earn the rewards – often the first 90 days.

Once you have spent just enough money to earn the bonus, you close the card immediately to avoid any annual fees. Then, you repeat the process all over again to earn your next reward (this is the “churn”). Many churners work towards more than one reward at a time and are able to collect bonuses more often than people who regularly use the same couple of cards regularly.

So for example, if you spot a card that offers 5,000 airline miles when you spend at least $3,000 in the first 90 days, you would apply for the card, spend $3,000, collect your bonus, immediately cancel the card, and repeat the process.

How Can Credit Card Churning Affect Your Credit?

Credit card churning can impact your credit in numerous ways, so it’s important to take this into consideration before beginning the practice. Here are the most common ways the practice can affect your credit:

  • Hard Inquiries: When you apply for a new credit card, there is a hard inquiry on your credit report. Inquiries account for 10% of your credit score under the VantageScore 3.0 model, so if you have a lot of inquiries in a short period of time, you may see an impact.
  • Payments: Credit card churning usually means you’ll have a lot of payments to keep track of. Since 35% of VantageScore is based on your payment history, missing just one payment can make an impact.  
  • Average Account Age: Opening new credit cards will lower the average account age, which counts for 15% of your total credit score. If you have a long credit history, a new card won’t make a huge impact on the average, but it will be much more significant if you have a short credit history.
  • Credit Utilization: 30% of your credit score is based on your overall credit utilization. The lower your utilization, the higher your score will be. Opening a new card will give you more total credit and can lower your utilization if you aren’t carrying a balance. But that will change as soon as you close the card.

What Are Additional Risks Associated With Credit Card Churning?

Credit card churning is one way to earn rewards, it can be difficult to do it correctly, and it certainly isn’t encouraged. Here are some of the most common downsides:

  • Spending Too Much Money: When it comes to credit card churning, you need to spend money to make money. And some cards require you to spend a lot of money in a short period of time, causing cardholders to make unnecessary purchases.

    If you start spending more money than you have just to earn the sign-up bonus, you’ll be hurting yourself in the long run.
  • Requiring High-Level Organization: Churning requires you to be organized and attentive to a lot of different information. Each credit card is going to have its own limit, balance, fees, and payment dates. You’ll also need to keep track of factors like your progress towards the reward amount and the account anniversary.

    Dedicated churners often utilize spreadsheets or other charts to keep track of their accounts. But it’s a lot of work, and many people quickly discover that it’s more than they can handle.
  • Time-Consuming: On top of all the organization required, credit card churning is a time-consuming practice. You’ll need to spend time searching for new offers, applying for the cards, and tracking your progress for each card open. For some people, the amount of time spent on these tasks just isn’t worth the rewards.
  • Fees and Interest Can Add Up Fast: If you aren’t careful, you could end up paying out more in fees and interest than you earn in rewards. If you forget to pay off your balance each month, you’ll still have to pay interest on the total amount. And if you forget a payment you’ll be hit with a fee.

What Are the Benefits?

Card churning is a technically legal way to earn cash back and reward bonuses from credit cards. Some cards offer substantial amounts of money as reward bonuses, like $150 back for $500 spent and $250 back for $1,000 back, which makes the time and effort worth it for those who participate.

People who chose to churn can avoid paying fees and interest if they pay off the balance every month and cancel the card by the time the annual fee is charged, making their efforts pure profit.

Card Companies Are Trying to Prevent Churners

While credit card churning isn’t illegal, credit card issuers don’t approve of the practice because it costs them money. They prefer to have long-term customers who will use their card for years to come, not just the initial three-month period. So some companies are taking measures to thwart churners from signing up for their cards.

Several different companies have included limits on the number of cards you can open within a time period. For example, Chase allows a maximum of 5 new credit cards in a 24-month period, while American Express will only allow you to have 4 accounts open with them at any given time.

Best Practices to Earn the Rewards You Want

Thankfully, it’s still possible to earn the rewards you want without participating in credit card churning. Here are a few strategies to keep in mind:

  • Be a responsible cardholder: If you maintain a positive credit history and relationship with your credit card companies, you’ll be more likely to get approved for new cards when you want them. Keep an eye out for new cards with sign-up bonuses that are also likely to meet your long-term needs.
  • Loyalty programs: Many cards have loyalty programs that allow you to earn points on your everyday purchases. Some of these cards also have bonus periods where you can earn more by using your cards in specific locations, like gas stations.
  • Downgrade your card: If you do open a new credit card for the sign-up bonus but realize it doesn’t meet your long-term needs, call the company and discuss downgrading. Most companies will allow you to keep the same account but switch to the no annual fee version of the card.

Bottom Line

For some people, credit card churning is a way to earn rewards, but for the majority of average credit card users, it’s more work than it’s worth. There’s no definitive way to determine whether churning is worth it, but with so many ways to earn the rewards you want without the risks of churning, it’s better to simply utilize cards responsibly and earn rewards through normal spending behaviors.

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