In many ways, credit cards are essential for improving your credit score and maintaining financial wellness. But for some people, credit cards are more than a tool; they’re a game.
Many credit card issuers offer attractive bonuses for new customers. Be it miles, points, or cash back, all you need to do is apply, get approved, and spend a predetermined amount of money over a predetermined amount of time to earn impressive rewards. Credit card churners are the customers who bounce around from bank to bank, collecting bonuses and walking away — and they’ve got it down to a science.
What’s Ahead:
Credit Card Churning Defined
Credit card issuers often incentivize new customers to apply by offering a particularly lucrative sign-up or welcome bonus.
“Get $300 cash back when you spend $600 in the first 90 days of account opening!”
“Earn 60,000 miles when you make $4,000 in purchases within the first six months!”
Credit card churning refers to those individuals who see these offers, take the bait (intentionally), then cancel their card. And they do it over and over again.
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The goal of credit card churning is to earn as many points, miles, or cash back as possible, and churners typically open multiple cards at once and/or in quick succession to accomplish their mission.
Read more: Best Credit Card Sign-Up Bonuses for 2022
Why Do People Churn Credit Cards?
For most, credit card churning is a kind of financial hobby. When done well, it can reap all kinds of rewards, from flight upgrades to free hotel stays. However, it also requires strategic planning and organizational skills to use several credit cards simultaneously and correctly.
You have to think about your current spending patterns and the perks you’d benefit from most. Once you’re approved for a card with a lucrative sign-up bonus, you have to meet special requirements, like spending minimums, in order to actually get that bonus. You also need to pay close attention to the card issuer’s specific rules and regulations. How many cards can you apply for? How do you redeem points or miles?
It’s a lot of information to juggle, but credit card churners are happy to play the game.
How Do Banks React to Credit Card Churning?
Consider how banks make the bulk of their money: Fees and interest. Good churners work hard to avoid these charges, and they walk away with more money than they’d started with too.
All in all, the two don’t get along.
If you’re interested in credit card churning, know that banks are watching and that they’ve established rules in an effort to prevent cardholders from engaging in the hobby. For example, most Citibank cardholders are eligible to receive only one welcome bonus for a new credit card in a 24-month period. Meanwhile, American Express customers are limited to just one welcome bonus per lifetime!
Banks have also instated rules that prevent customers from submitting multiple credit card applications or being approved for multiple cards in a short period. For instance, customers of Chase Bank are limited by the Chase 5/24 rule, which states that any customer approved for five or more credit cards in the past 24 months will not be approved for another Chase card.
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All in all, banks aren’t fans of credit card churning, and they work hard to create language in their applications that prevent the practice. If you’re caught red-handed, they could close your account and revoke your rewards, so be sure to research bank policies thoroughly before you apply for your next card.
Risks of Credit Card Churning
Credit Score Damage
Disclaimer: Credit is complex. Yes, credit card churning can hurt your credit score. But it could also help your credit score.
First of all, when you apply for a new credit card, you generate a hard pull on your credit report. This drops your score a few points, which isn’t too catastrophic…until you begin applying for multiple cards at once.
Details like the length of your credit history also impact your score, so if you’re constantly opening and closing cards, it could hurt your credit. Not to mention, juggling multiple cards at once could result in a missed payment here and there, which could seriously damage your score.
However, even with all this said, having multiple credit cards also has the potential to improve your credit score.
The three major credit bureaus — Experian, Equifax, and Transunion — rely on five categories to calculate your credit score, and one of the most crucial categories is your credit utilization ratio. This refers to the amount of money you owe on all your credit products, divided by your combined spending limit for those products. A general rule of thumb is to keep the ratio below 30% (the lower, the better).
If you have only one credit card with a $10,000 spending limit, and you’re spending $3,000 every month on the card, you’re already at 30% credit utilization. But if you get another card with a $5,000 limit, your combined credit limit is now $15,000, which reduces your utilization to only 20%. Consequently, adding a new credit card to your wallet will improve your credit utilization ratio, thus improving your credit score.
Collecting Annual Fees
It’s not difficult to find credit cards that offer welcome bonuses for new customers. However, it is worthwhile to add a secondary requirement for the cards you apply for: No (or low) annual fee. Mounting fees eat away at your rewards, defeating the purpose of credit card churning.
Missing Card Payments
When it comes to credit card churning, missing card payments is the ultimate faux paus. Ashley, a 25-year-old registered nurse, began credit card churning after college. “[I] was raised to work smarter, not harder,” she says. “[I’m] always looking to spread my dollar a little thinner.”
However, it’s hard to stretch your dollars if you’re also missing card payments. Just as is the case with annual fees, accruing interest on your credit card(s) makes the reason for credit card churning obsolete. Ashley warns, “Cards with high welcome bonuses typically have the highest interest rates. Paying interest makes the welcome bonus not worth it.”
Overspending to Meet Minimums
To earn a credit card’s welcome bonus, you’ll need to meet a minimum spending requirement, generally within the first few months from opening your account. If you know you’ll spend that money already, regardless of the reward, using the credit card to do so makes sense.
“If you are planning to make a big purchase (furniture, new tech, travel),” says Ashley, “it’s probably a good time to open a credit card with a high welcome bonus.”
However, credit card churning is a slippery slope. It’s easy to slip into a habit of overspending to meet sign-up bonus spending minimums. At that point, you’re not really earning money. You’re wasting it.
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Tips for Credit Card Churning
Apply for Cards That Earn Transferable Points
One way to maximize your earnings is to search for credit cards that allow you to transfer points to other rewards programs. This is a particularly helpful tip for consumers interested in travel rewards, which makes up a large segment of the credit card churning community.
If you’ve collected modest sign-up bonuses from two credit cards, but the bonuses are for two different rewards programs, you’ll usually have to redeem those separate bonuses for two relatively small prizes. But if one card’s points are transferable to the other card’s rewards program, you can simply pool the points together for a bigger jackpot.
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Take Advantage of Targeted Offers
Targeted offers may be exempt from certain restrictions imposed by credit card issuers, and sometimes they offer even larger bonuses than the regular, mass-market offers available to everyone.
However, before you pursue a targeted offer, make sure you are the intended recipient. If you’re attempting to take advantage of an offer that wasn’t meant for you, the bank may cancel your account and perhaps even seize the points or miles you’ve earned.
Meet Spending Minimums
Before you commit to a new card, make sure the spending requirement is a realistic achievement for you, based on your current spending habits. If you’re applying to multiple cards at once, this tip is even more imperative.
Some churners reach their spending minimums by using a credit card for major expenses, like tax or rent payments. But these types of payments can sometimes result in high third-party processing fees, so be sure to read our guides to paying taxes with a credit card and paying rent with a credit card before you bank on this strategy.
Think Twice Before Canceling
It might feel intuitive for a new churner to cancel a credit card soon after getting the welcome bonus, but closing a card can increase your credit utilization, and hurt your credit score. If canceling a card will bump your utilization above 30%, it’s probably best to keep the card open instead, even if you don’t plan to make any purchases with it.
Read more: When Should You Cancel a Credit Card?
Or, rather than applying for cards that offer little long-term value after the bonus is paid out, consider applying only for cards with permanent features that match your general spending habits and lifestyle.
“Find a credit card worth keeping based on your highest spending categories,” says Ashley. “For me, it’s groceries, gas, and eating out/dining. My magic wallet is the Capital One Savor Card (3% back on groceries), Chase Sapphire Preferred® Card (5X points back on travel via Chase Ultimate Rewards®), Chase Freedom Flex℠ (3% back on restaurants, 1.5% on everything else), and Chase Amazon Prime (5% back on Amazon, 2% back on gas).”
Stay Organized
If you’re interested in credit card churning, you’ll need to track each card’s unique requirements and rules to make the most of the perks offered. If you slip up and confuse one card’s guidelines for another’s, you could miss out on potential benefits, spend money you didn’t need to, or accrue interest charges.
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Know When to Avoid Credit Card Churning
Remember that banks don’t love to see sporadic cardholders. If you’re opening accounts left and right, then closing them shortly after, lenders will get suspicious. With this in mind, avoid credit card churning if you’re planning to seek out a loan (particularly a mortgage) in the near future.
FAQs
What Is Credit Card Churning?
Credit card churning is the practice of applying for multiple credit cards for the sole purpose of earning the welcome bonus, then canceling the card before interest accrues or an annual fee is due.
Is Credit Card Churning Illegal?
Technically, no. Credit card churning is not illegal.
However, many banks have included language in their applications that prevent credit card churning. So, before you apply for yet another card, make sure you’ve done your research and checked the fine print.
What Is the Chase 5/24 rule?
The Chase 5/24 rule prevents customers who’ve been approved for five or more credit cards in the past 24 months from being approved for another Chase credit card.
What Happens if Someone Applies for Multiple Cards in a Short Period of Time?
When you habitually apply to multiple credit cards at once, credit card issuers may interpret your behavior as an indicator of financial instability, and your credit card applications may be denied.
Consequently, credit card churning could not only damage your credit score, but it may prevent you from getting approved for future credit cards. Try and wait six months or so between credit card applications.
Read more: Why Your Credit Card Application Was Denied
How Many Credit Cards Should You Apply for at Once?
Since lenders often limit the number of credit card applications you can submit, the number of cards you can be approved for, and the number of welcome bonuses you’re eligible to receive in a given period of time, you’ll want to pay attention to their specific rules to determine how many cards you should apply for at once.
It’s fairly common for credit card churners to have at least two or three credit cards at a time, and many churners cycle through their cards every few months (since most welcome bonuses require holding a card for a few months).
Ultimately, however, the question you should ask is, “How many cards can I manage?” Better yet, “How many do I need?” Sign-up bonuses are great, but credit card churning is not without its risks, so make sure you don’t commit to more than you can handle.
Read more: How Many Sign-Up Bonuses Is Too Many?
Summary
Credit card churning is the practice of opening and closing multiple credit cards at a time, for the purpose of earning sign-up bonuses. Churners meet a card’s minimum qualifications to rack up points, miles, cash back, and other freebies, then cancel the card before paying interest or an annual fee.
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While this tactic certainly has the potential to earn you great rewards, it also comes with risks, including overspending to meet credit card minimums and damaging your credit score. If you’d like to attempt credit card churning, make sure you’ve done thorough research on the card(s) you want and stay organized along the way.
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