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What is Credit Card Churning?

  February 12

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what is credit card churningYou asked, peeps, so I’m answering:

“What is Credit Card Churning?”

Credit card churning is the process of applying for credit cards several times a year, spending on them to earn a big introductory bonus, and then closing them out before the annual fee comes due.

It sounds cray cray but it’s true, and there is a small but vocal community of people who do this as a hobby and earn thousands of dollars in rewards each year in the process. If you recall, I used my credit card points to fly first class a few times, and I don’t regret it at all.

The Basics

Credit cards regularly offer rewards of $200 – $500 or more for signing up. So, why use your cards for years and just earn a standard one point per dollar when you can earn thousands and thousands of points by just meeting bonus offers of new cards?

For example, you might find an offer that gives you $400 in reward points after you spend $3,000 in 3 months on a new card. So for the first $3,000 you spend on your card, you’ll earn over 13% in rewards back ($400/$3,000 in spending). After that, you can churn another card with an offer and earn something similar by putting your everyday spending on it for the next few months. You can also find other creative ways of moving money around to meet these minimum spend requirements by doing some research and talking to others on churning forums.

Yeah But What’s the Catch?

First, you need to have excellent credit. You can earn hundreds of thousands of miles in rewards, but the best offers are only for those with the best credit. For example, this year there is actually a 100,000 mile American Advantage bonus offer that I am considering getting, but it’s only available on its high end credit card that comes with a hefty fee. Still, it might be worth it, since 100,000 miles is a round trip first class domestic ticket and could even be a round trip international ticket if you are looking in the off season. Just as an FYI, a credit score of 720 or higher on a scale of 850 is considered excellent, and that’s what is typically required for these cards.

Second, you shouldn’t be applying for a mortgage. Applying for a credit card will lower your score modestly – about 5 points for each application (so lots of people try to time multiple applications and thus their credit “hits” on the same day.) This effect lasts at most a year on your score, but often lessens too since the more cards you open means you end up having more credit available to your name, a good thing for your score. But if you are about to get a mortgage or other big loan (which I am not) and are borderline on being qualified, they may frown upon opening too many card accounts just prior to applying for the loan. So, use this wisely!

Third, you need to be able to pay cards in full each month. Credit card companies make good money on your forgetfulness. If you forget to pay off a card in full, you’ll be hit with interest charges on your balance for the month, and those charges lower the value you’re getting from sign up offers. It’s not worth it to go after rewards if you can’t pay your rewards cards in full each month. So, if you want to get into this hobby, make sure your finances are under control and you are ready to take on this responsibility.

Fourth, you need to be able to keep track of when you applied. Most cards with a good reward bonus offer carry an annual fee after the first year. There’s a good chance you may want to keep some of the cards you try out, but some you won’t want to keep and cancel before the annual fee is due. If you end up applying for several cards, it’s a good idea to set a reminder on your smart phone calendar for a year from now, when the annual fee will come due.

Finally, don’t be greedy about it. Banks want you to switch to try out their products, and they are willing to pay nice offers to do it. But if you abuse a single bank by applying for say 5 of its cards a year and cancel them all right away, you’re sending a message you’re not a good customer, and it will raise red flags. Better to apply for a few cards spread out over different banks throughout the year, and you’ll still earn hundreds, even thousands of dollars in rewards from your regular spending.

So, now that I’ve answered the big question – “What is credit card churning?” – I have to ask you something: Are you game?

P.S. As with any financial tips on here, please use with your own risk. My blog is just for funsies and entertainment purposes, and while I enjoy churning credit cards, it might not be right for you.

25 responses to “What is Credit Card Churning?

  1. I’ll pass on doing this….or I’ll be writing a post entitled “How I dug myself out of $109,000 of credit card debt….and then racked it back up again.” LOL.

  2. I know many people in the personal finance space who are having success with this. They are disciplined with their spending and pay these off every month. I won’t be doing this simply because I wouldn’t enjoy the maintenance and constant turnover. I wonder how long it will take credit card companies to put in provisions that discourage people from dumping their cards the minute they have received their rewards.

  3. Not sure how I feel about this….I do have a question, though. When you close the account before the annual fee hits, what impact does that have on your credit score?

  4. I haven’t gotten into churning for real, though I did recently get the Barclays Arrival card. The bonus was definitely a reason, but it’s also slightly better as a daily card than the Fidelity Amex I’ve been using for years for as long as I can get the annual fee waived.

  5. We probably won’t be buying for at least another 1.5 years, so we plan on churning some cards in the next few months to take advantage of this. Since we have a lot of wedding expenses coming up, I know that I can get a good amount of bonuses in!

  6. More words of financial wisdom that are pretty doable for many! Will certainly spread this idea!

  7. I would assume that you have to use the rewards before you cancel the card. Especially if it is miles. Right?
    I would try this, but I don’t know if I would be able to go on any trips to use up the miles in the next year.

    1. It completely depends on the card! If you open an airline or hotel branded card such as the Delta Amex, Starwood Amex, Southwest Visa, etc., those points are transferred to your account at the respective airline/hotel each month and they are NOT linked any longer with your credit card account. So you can cancel the credit card and you will not lose the points.

      Then there are the transferable points cards (which are some of the best) like the Chase Sapphire Preferred, Chase Ink Bold and Ink Plus, which give Chase Ultimate Rewards points. Those points reside in your credit card account until you TRANSFER them to the respective partners (Hyatt, United, Southwest and British Airways being four of the top Chase UR partners). If you close the credit card while there are still points there, you lose them. The easy way to not lose them is to transfer them to a partner before closing the credit card. Takes 30 seconds…

      The Barclaycard Arrival card is slightly different: you earn bonus points which are really just statement credits to offset travel expenses used on that card. So you would have to travel before closing the card.

      Hope that helps! I offer a completely free travel rewards coaching service through my site, so sign up or shoot me an email if you want to learn more…

  8. I’ve done it a few times and I think it’s great! I got all these miles for filling a form! So far I got enough for a free flight and 3 nights in hotels. I can’t complain!

  9. I’ve churned cards before and will probably do it again though it’s been a while. Usually I don’t try a new card until I see a great offer. I always get sucked in with hundreds of dollars in travel because I love taking trips!

  10. I absolutely love this game! I’ve been playing this for over a year now, and love getting those huge bonus points, 30k+. I’ve used those to help book a first class trip around the world later this year, in August.

    Right now, there’s an awesome 100k AA card that’s floating around… The catch is you need to spend $10,000 in 3 months. Probably not easy for most, but that bonus is so lucrative!

    In regards to credit score, I’ve noticed the credit cards only do temporary damage. And not much either… Last year I opened up 5 cards and then applied for a mortgage. They only asked about the inquires, but the hit wasn’t bad at all. But like you said, you need a high credit score to begin with.

  11. I just got into churning and I think it can be good if you are good with credit cards. I won’t be doing too much this year as we are buying a house and I want my credit score to be as high as possible.

  12. This is the second article I’ve read on the subject of credit card churning, and though I’m very intrigued, it also terrifies me! I think my husband and I are disciplined enough in our finances to make this work for us, plus we’re not applying for a home loan anytime soon. It seems brilliant but somehow too good to be true. I plan to chat with him about it though, so thanks for the info!

  13. Nice post Cat, this is definitely something I want to explore in the coming months (cautiously of course!). If the opportunity is there, we may as well get paid for our petrol and grocery spend!

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