What Is Credit Card Churning?

FT Contributor
A hand holds multiple credit cards in a fanned out fashion.

Credit card churning is the technique of opening and closing credit card accounts to take advantage of the rewards and benefits offered through sign-up bonuses and programs. Consumers implement a credit card churning strategy to obtain the perks offered from multiple credit card companies with no intention of keeping these accounts open for long.

This venture is tricky and makes you vulnerable to serious financial risks. However, if credit card churning is executed correctly, it can be beneficial and you can obtain great rewards from credit card companies. A credit card churner is usually after high-reward benefits, such as:

  • Cash bonuses: Many credit card companies offer a sign-on cash bonus if you spend a certain amount after you sign up. These bonuses are usually mailed to you in the form of a check or can be applied to your credit card balance.
  • Bonus points: Your sign-on bonus or introductory offer may include a certain number of bonus points. Depending on the company, you can cash in these bonus points for hotel stays or other rewards.
  • Reward program prizes: To incentivize a consumer to sign up for a credit card account, the company may offer prizes through a rewards program, such as gift cards or electronics. In some cases, you may have to reach a certain balance in a period of time to qualify for these prizes.
  • Airline miles: Some companies offer free airline miles for every dollar you spend on your card. Most of these credit card companies also offer a set number of airline miles to new customers, especially if they rack up a certain balance within a time period after signing up.

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How to Churn Credit Cards

While the concept of credit churning sounds simple, it can actually be complex and detailed. If you want to efficiently churn credit cards but decrease your financial risk, it’s important to consider some important factors first. You’ll need to put in the time and effort to research credit card companies, application procedures, and rewards and bonuses they offer.

Before applying for credit cards, make sure the rewards add up and make it worth opening an account. It’s also important to confirm that you have good credit so you can be approved for the credit cards you want. You should have some disposable income so you can spend the minimum balance needed to obtain certain rewards.

Credit Card Churning Tips

While credit card churning can get you free gifts or travel accommodations, it comes with serious risks. You can minimize these risks by:

  • Reading the fine print in the credit card offer before accepting it.
  • Paying your bills monthly so you don’t accrue interest.
  • Staying organized so you remember which accounts are open and when to close them.
  • Avoiding annual fees charged by credit card companies.
  • Paying all your credit card bills on time so you don’t incur penalties.
  • Not opening more credit card accounts than you can handle at one time.
  • Taking breaks from credit card churning to build your credit back up.

Benefits of Churning Credit Cards

Credit card churning can be appealing if you want to earn free prizes or travel accommodations. The rewards and bonuses available can vary by company and depend on current offers and what you qualify for.

  • Sign-up bonuses: You may be eligible for a sign-up bonus when you first open an account with a credit card company. Different credit cards may offer different sign-up bonuses, but they usually require you to rack up a certain balance on the card within an introductory period, which could be 30 or 90 days. Opening multiple accounts can make you eligible for several sign-up bonuses, which is how you can earn your rewards.
  • Little or no cost: You may be able to find credit card offers that allow you to sign up for accounts and earn rewards with little to no out-of-pocket costs. Some credit card companies provide you with rewards points or airline miles right when you open an account, regardless of the balance you spend. If you can seek out these credit card offers, you’ll experience less financial risk and more rewards.
  • Rewards in multiple areas: When you implement an effective credit card churning technique, you can earn different types of rewards. Credit card companies usually focus on different types of benefits. By signing up for multiple credit cards simultaneously, you can obtain a variety of these benefits, such as airline miles, cashback, rewards points, hotel stays, or gift cards.

Risks of Churning Credit Cards

While you may be able to earn adequate benefits through credit churning, you should also be aware of the serious financial risks you can encounter by following this process.

  • A decrease in credit score: When you open a credit card account, a hard inquiry is made on your credit. The credit card company pulls your full report to examine your creditworthiness and to analyze financial risk. This hard inquiry has a negative effect on your credit and can decrease your score. By opening several accounts, your credit report takes on multiple hard inquiries.

Opening several new accounts over a short period of time also lowers your average account age. Long-term accounts are more valuable on your report than newer ones, so this can lower your credit score as well.

  • Potential overspending: Some bonus or reward offers have stipulations, such as spending $1,000 in the first 90 days of opening the account. If you’re attempting to earn these introductory rewards, you could be making large purchases you can’t afford or simply don’t need. If you’re juggling multiple new credit card accounts and trying to qualify for sign-on bonuses, you’ll have several high balances to deal with. In many cases, you may need to spend more to get the reward than the actual reward itself.
  • Annual fees: Many credit cards come with annual fees. In some cases, you can close the account before these fees are due. However, if it takes too long to receive your rewards or the stipulations call for you to keep the account open for at least a year, you’ll be responsible for paying these fees. The fees you owe can cut into your rewards, or may make it impossible for you to profit from the transaction at all.
  • Interest: If you have to use your credit card and rack up a balance to qualify for certain rewards, you may find it hard to pay off that balance at the end of the month. If you don’t plan for paying off the balance, you’ll incur interest on it. With multiple accounts and balances, this interest adds up and depletes your profit, which may not make the rewards you earn worth it.

While credit card churning can earn you some great rewards and benefits, it’s important to weigh the pros and cons of this technique. If you want to try credit churning, be sure you’re prepared and do your research so you can minimize the financially damaging effects it can cause.

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