Credit card churning can be a great way to earn travel points and lucrative bonuses—but it requires a careful strategy, because high-rewards always come with high-risks.
Done incorrectly, you could damage your credit score, incur steep fees, and rack up some sizable debt. Keep reading our credit card churning guide to learn more, or use the links below to jump to the section you’re most interested in.
What is credit card churning and how does it work?
The process of credit card churning goes along these lines:
- You see a promotion that offers rewards for opening a new credit card account, such as cashback on spending or a bundle of points that can be redeemed for travel.
- You apply for the credit card, and once approved, spend the minimum requirement that qualifies you for the bonus.
- After earning the points, you claim your reward then close the account before incurring the annual fee involved with the account—which is usually pretty expensive on the credit cards with the best rewards. Note: some cards have requirements on how long you have them open and how often you can receive a bonus from that company if you have had another card with them recently.
Note: The term churning comes from the fact that these credit cards are typically used for only a short period of time before they’re swapped out with a new one promising more perks, although you can keep the account open if you’d like. Keep in mind that your credit scores can take a hit if you cancel a credit card, as it may lower your credit history and increase credit utilization ratio. Opening a new credit card also damages your credit score; because this is a new credit inquiry and line, it can decrease the average age of your debt (as the line has no history). However this could be slightly mitigated if the new line has a higher limit that decreases your utilization. It is wise to avoid this strategy if you need a high credit score to make a big purchase in the next year.
There are certainly a number of benefits you can gain with this strategy, but the risks are substantial, too. We’ll take a deeper look at the pros and cons of credit card churning in the sections below.
Benefits of credit card churning
Many credit card issuers offer generous packages to incentivize new members to sign up. There are typically three types of rewards currencies: points, miles, and cash back.
Points are typically rewarded for every dollar spent, so for every $1 you spend you get at least one point back in return—but some purchases that fall within certain categories may be worth more, such as earning 1.5 back on your restaurant tab or Uber fare. You can also earn points for referring friends or spending a certain amount within a limited period of time (usually 90 days of opening the account).
Credit card miles are either tied to a specific airline or accumulated generically to be applied to any number of travel-related expenses, such as rental cars or hotel lodging. If you’re a frequent flyer, churning travel credit cards can be a great way to keep airfare costs down.
It’s a common practice used by “travel hackers” who want to maximize rewards with minimal effort. In some cases, you might be able to combine airline miles with hotel loyalty points to take a trip entirely free of charge.
Each issuer has its own range of redemption options. For example, points may be worth one cent when applied to travel or equate to a half-cent when redeemed as cash back. Some consumers churn credit cards with lucrative cash back bonuses to enjoy flexible rewards that can be spent on a variety of things, ranging from gift cards to mailed checks, while others prefer to use their credit abroad.
Note: Each card issuer and account has their own type of system for offering benefits, so make sure you read the fine print before signing onto any new credit card offers.
Credit churning can offer a number of benefits when done efficiently—but there are certain risks you need to be aware of.
Risks of credit card churning
Before you start applying for all sorts of credit cards offering shiny perks, bear these considerations in mind.
It’s really easy to lose track of the credit cards you’re churning. You can find yourself down a rabbit hole, chasing promotion after promotion, and forget why you initially signed up for a certain card.
For example, you might have opened an account for Southwest airline mileage but then stumbled upon information about how to churn travel points for a Caribbean cruise. The earning strategy for one account is entirely different than the other, causing you to lose sight of your focus. Also, while exploring all your options, the redemption value can change or expire, rendering your points worthless.
If you have multiple bills with varying due dates, you can wind up missing payments. Even if you stay on top of all your payment deadlines, they might be hard to meet—especially if you’ve been stretching your budget to hit the minimum spending requirement for a given card.
Missed or partial payments can lead to late fees and accumulated interest, neither of which are good for your bank account. And if you forget to cancel a credit card before the annual fee—which averages around $110 but may be steeper on high-rewards cards—you can be hit with an expense you didn’t see coming.
Most importantly, you need to understand the relationship between credit card churning and credit scores, because going overboard can seriously hurt your financial health.
Impacts of churning on your credit score
There are several factors that play into how your credit score is determined. According to MyFICO, there are five distinct components you need to keep in balance.
Every time you apply for a line of credit on a separate account, it results in a “hard inquiry” against your new credit file. Even though that category only comprises 10% of your overall credit score, applying for numerous credit cards within a short period of time will signal a big red flag to lenders and negatively impact your creditworthiness as a result.
Although making timely payments can significantly bolster your credit strength, spending past your means will increase your credit utilization ratio past a safe threshold and create an adverse effect. It’s a very fine line to walk, so it’s important to check your credit score regularly when learning how to churn credit cards.
As a general rule of thumb, there are certain occasions that may suggest holding off on this strategy.
When to avoid credit card churning
- Never had a credit card – If you’ve never opened a credit card account, it’s better to get your feet wet before diving in and juggling rewards.
- Have poor credit – Consumers with poor credit should do what they can to raise their credit score before applying for new lines of credit and having their applications rejected, resulting in a hard hit that’s all for nothing.
- Preparing for a major loan – Lenders want to see strong financial stability before signing off on any big borrowing decisions. If you’re planning to get a mortgage or obtain a car loan in the near future, hold off on new credit cards until you secure your financing.
- Need to keep spending low – Most of the time, effective credit card churning requires large expenses to earn the lucrative bonus. If you need to keep spending down in order to stay within your budget, it’s probably not worth the effort to apply for rewards cards.
- Lack enough time dedication – Credit churning demands a ton of time commitment when managing payments and promotion criteria. Be sure you can give it the attention and energy it deserves before setting off on a questionable strategy.
Tips for credit card churning
Think the time is right to start scouring for points? We’ve included some essential tips within our credit card churning guide to increase your odds of success.
- Research new credit card offers – Always, always read the fine print and pay attention to financial terms like “APR” and before submitting an application.
- Don’t take on more than you can handle – As you begin learning how to churn credit cards, start with one success story before cycling through multiple accounts at the same time.
- Be mindful of fees involved – It’s not just annual fees you need to watch out for; late payments and interest rates can also set you back if they’re not managed properly.
- Avoid opening too many accounts in a short period of time – Your credit score is a huge indicator of your financial wellbeing, so protect it by minimizing the number of hard hits on your file within a short time frame.
- Submit timely payments – Even if you can only meet the minimum payment amount, do your best to always chip away at your credit card bill in a timely fashion.
- Set a goal for rewards – Use budget trackers and phone reminders to help you stay on track of the goal you’re trying to reach.
- Forgo balance transfers and cash advances – These actions can rack up penalties or detract the points you’ve worked hard to earn. Explore other options to free up funds instead.
- Stay organized – It’s a good idea to create a spreadsheet that helps you keep track of every card you open with important details about the account.
Alternatives to credit card churning
If all of this is sounding like a lot to manage, you can consider alternatives to credit card churning. Sure, those offers can seem pretty attractive, but it may be better to narrow your scope to just one account, or to save up for a trip the old-school way with dedicated budgeting.
Wrapping Up
At the end of the day, you never want to jeopardize your finances to score a “free” vacation. Mint can help track your spending and manage bill payments so you can stay on track if you decide to start churning credit cards, or it can assist you with establishing savings goals if you feel that churning cards may not be the right solution for your needs.