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Credit card churning 101

Graham Christian

Everyone loves the attractive signup bonuses and promotions that come with a new credit card. The only problem? They don’t last forever. Eventually, the promotional period expires, taking with it all the pumped-up rewards you’ve been enjoying. 

But what if that honeymoon phase never had to end? Instead of dealing with the standard annual fees and cashback rates associated with long-term card ownership, you could simply continue benefiting from lucrative signup offers in perpetuity. 

This is commonly referred to as “credit card churning”, and it’s a trend that’s been gaining popularity in recent years. While using this trick effectively can net you big rewards and savings, there’s plenty of pitfalls associated with it as well. Want to learn more? Let’s dive in.

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What is credit card churning?

Credit card churning refers to the practice of signing up for credit cards just to take advantage of their signup bonuses (which usually involve higher-than-average point values or cashback rates for a specific window of time). In many cases, “churners” have no interest in using or even keeping the card past its promotional period. When the offer ends, they simply close their account before the annual fee kicks in, move on to a new card, and start the process all over again. This is especially common with users of travel cards, who are often able to pay for flights and accommodations with the rewards they earn.

 

How credit card churning works

In order to attract new users and encourage spending, credit card providers will routinely advertise tempting signup offers and bonuses alongside their products. These usually take the form of accelerated rewards for travel or everyday purchases and can only be accessed after spending a certain amount within a set time period (typically around three months).

Credit card churning allows you to take advantage of these benefits without having to pay any fees or interest. A normal churning process goes like this:

  1. Find at least two credit cards that feature exceptionally lucrative sign-up offers, whether in miles, points, or cash back rewards. Make sure they don’t require you to continue using the card or keep your account open for a certain amount of time after the offer ends.
  2. Sign up for these cards. You can apply for them at the same time or one after another, but you    want to make sure your applications are less than three months apart in order to take full advantage of the bonuses’ timelines.
  3. Spend enough on the cards within the set time frame to get the advertised bonuses.
  4. Stop using (or cancel) the cards once the promotional period ends or before you have to pay an annual fee.
  5. Start the process over again with new cards.

 

7 Tips for effective credit card churning

 

Stay in the loop about new signup bonuses

Credit card companies are always offering fresh signup bonuses and incentives, so make sure you’re following provider pages and top credit card blogs (like this one!) to stay informed and up-to-date. On the same token, existing offers will change frequently as well, so it’s possible that an underwhelming signup bonus on one card could become a lot more attractive in a few months once it gets updated. Staying current will allow you to take advantage of the best deals as soon as they’re available.

 

Have specific spending goals

Knowing exactly how you’re going to use your rewards can be helpful when choosing which cards and signup bonuses to apply for. If your goal is to save on an upcoming trip, for instance, you can narrow your focus to travel cards (or, even further, to travel cards that feature points or miles, whichever you prefer). Do some research and discover which cards offer the most attractive bonus for travel spending and will allow you to reach your objective in the shortest amount of time. 

 

Avoid fees if possible

A big reason why users engage in credit card churning is to avoid annual fees, so try to select no-fee credit cards if possible. If your dream card happens to come with a yearly charge, make sure you cancel it before that happens. And if you’re planning on keeping the card longer than that, do the math and figure out whether the rewards you’ll be getting are enough to make the annual fee worth it. If the numbers don’t add up, it’s best to choose a different card.

 

Know your eligibility

Having a credit card application rejected is no fun. That’s why it’s important to know not only the eligibility requirements of the cards you’re applying for, but also your own credit score, credit history, yearly income, and employment status. If the card you’ve selected requires a higher credit score or annual income than you currently have, it’s best to leave it alone until you’re in a better position to apply. That being said, you certainly don’t need a perfect credit score and six figure income for every credit card. There are plenty of cards out there for users of all different types, so read the fine print and only apply for the ones you’re sure to get. 

 

Keep track of the cards you’re churning

   One of the biggest dangers of credit card churning is losing track of spending requirements, monthly statements, and promotional end dates. To avoid this happening, keep track of the cards in your roster by creating a spreadsheet detailing each card’s provider/card type, signup date, spending requirement, annual fee, bonus amount, and promotional window. When you’ve got all this information in one place, you can refer to it easily to keep you on track and reduce harmful slip-ups.

 

Pay your statements on time and in full

There isn’t much to be gained from credit card churning if you’re also stuck paying interest on top of your monthly statements. Interest eats into your rewards and, if allowed to grow, will essentially make them valueless. That’s why it is especially important to make sure your monthly statements are paid on time and in the full amount, letting you enjoy all the benefits and suffer none of the drawbacks.

 

Keep an eye on your credit

Too much credit card churning can do damage to your credit score if you’re not careful, so it’s always a good practice to keep a close eye on your credit report and check in regularly to monitor any significant changes. If it looks like your score is taking too big of a hit, pump the brakes for a while until it recovers. A healthy credit score opens financial doors (and allows you to apply for credit cards successfully), so make it a priority.

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Does credit card churning hurt your credit score?

While credit card churning can net you significant rewards, the process of opening multiple cards and spending big in a short amount of time can also do serious damage to your credit. Below are a few ways that you could get burned if you’re not careful.

 

Hard credit checks

Every time you apply for a new credit card, you’ll be subjected to a hard credit check by the provider. These reviews are designed to establish whether or not you meet the requirements for a given card, and they can take a bite out of your credit score. While one or two every once in a while will be easy for most people to bounce back from, applying for multiple cards over and over in a short period of time will result in a significant decrease to your score.

 

Multiple applications

In order to work, credit card churning requires you to always be applying for new cards, usually filing multiple applications at once. The danger in doing this is that providers see this behaviour as worrisome. Too many applications at one time makes you seem like someone suffering from financial issues who is desperate for credit, and that could affect your ability to get approved for credit cards or loans down the road.

 

Credit history and utilization

Your credit history is how providers find out how long you’ve been a user of credit. A longer credit history looks good because it shows you’ve been using credit responsibly for a number of years. Because credit card churning involves signing up for and cancelling credit cards over and over, this pattern can shorten the average age of your accounts. This could effectively hurt your score, as credit history plays a big part in determining that number.

Similarly, credit card churning also has the ability to negatively impact your credit utilization ratio, a figure which represents how much of your total available credit you use on average. Experts recommend your credit utilization to be around 30% of your total credit, and credit card churning can cause that percentage to become volatile and unpredictable, ultimately leading to a drop in your score.

 

Credit card debt

Because many cards require you to hit a minimum spending limit within the first few months to gain access to their signup bonuses, credit card churning can involve a lot of reckless spending in a short time. If you’ve got the income and budgeting skills to handle it, that’s great, but you’ll always be running the risk of losing track of all those bills (especially if you’re juggling multiple cards at once). If you start losing track of what you owe and missing payments, you could end up in a mess of interest-bloated credit card debt that’s hard to get out from, hurting your credit score in the long run.


When to avoid credit card churning

While credit card churning can easily leave your credit score in a bad state, there are other reasons to shy away from it. We highlight a couple of them below.

 

You’re in the market for a house or loan

Lenders tend to look for clients who have a solid, reliable history of credit usage. As credit card churning can easily make your credit history and utilization look unstable (outside of the possible debt you could incur), this could affect your ability to be approved for a mortgage or personal loan. 

 

You’ve had trouble with debt in the past

Not everyone has had a perfect relationship with credit. For some, keeping track of spending and bills has proven difficult, and it’s important to safeguard against landing in that same situation going forward. While this could mean using secured or prepaid credit cards, it should also include avoiding credit card churning. Balancing multiple bills and due dates takes effort even for a savvy credit user, so those with past troubles in this area would be wise to steer clear.

 

Pros and cons of credit card churning

Now that we’ve highlighted all the benefits and drawbacks to credit card churning, let’s take a quick look at the pros and cons:

 

Pros:

  • Signing up for multiple credit cards maximizes your available rewards
  • You’ll earn rewards much faster than you would through regular credit card usage. 
  • Freedom and flexibility to cancel or stop using cards once they’ve exhausted their use

 

Cons:

  • It’s harmful to your credit score in a number of ways (credit history, utilization, debt)
  • Makes you look unreliable to future lenders due to multiple opened and closed accounts
  • You could get stuck paying an annual fee if you forget to cancel a card (which eats into your reward earnings)

 

Is credit card churning worth it?

While credit card churning can be incredibly lucrative, the answer to this question really depends on what kind of a credit user you are. 

For those with high income, an excellent credit score, and a long history of responsibly using credit, it can reap high rewards and big savings, but it takes commitment. You typically have to be someone who enjoys the thrill of collecting rewards on multiple cards and tracking your progress. If any of this sounds boring to you, you may eventually lose interest, which could land you in trouble if you’re not actively monitoring your card activity.

Users who are new to using credit or have had a complicated relationship with it in the past would do well to steer clear as well. This also applies if you’re on a fixed income, attempting to budget, or are preparing to apply for a mortgage or other personal loan. The dangers involved in credit card churning require the person doing it to be well-protected against any pitfalls. If you’re going into it without a safety net such as an excellent credit score or high annual income, you’re putting a lot at risk.

 

The last word

Credit card churning can pay off huge, or it can leave you in serious financial trouble. In the end, it’s important to look past the glimmering promise of big rewards and think about whether you have the money, credit, and time to invest in it. 

What’s your opinion on credit card churning? Let us know in the comments below.

 

Also read:

How stacking credit cards can maximize your cash-back returns

Canada's 8 best credit card promotions and sign-up offers for 2022

10 common credit score mistakes to avoid

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