What Is Credit Card Churning?

What Is Credit Card Churning? article image.

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Credit card churning is the practice of repeatedly opening and closing credit cards to earn cash, rewards points or miles. Often, you can qualify for a large intro bonus after opening a new credit card, which is something "churners'' exploit to try to amass a lot of rewards. However, credit card companies may view the practice as gaming the system and take steps to prevent it.

How Credit Card Churning Works

Credit card churning involves opening new credit cards to get the intro bonus without intending to use the cards afterward. Churning isn't illegal, but it is controversial and frowned upon by card issuers.

Before credit card issuers really caught on and put systems in place to stop the practice, churners would open multiple credit cards in quick succession, earn the intro bonus for each new account and then close or stop using the cards. A few months later, churners would start again with another round of applications. While they had to meet the minimum spending requirements to earn the intro bonuses, there were tricks to accomplish that as well.

Credit card churning still happens, but many credit card issuers have updated the terms and conditions for their credit cards and rewards programs to stop it, or at least make it harder and less lucrative.

Another example is Chase's unofficial 5/24 rule, which means the card issuer generally won't approve you for a new credit card if you've opened five cards within the last 24 months—including cards from other issuers.

Other card issuers may take similar approaches to stop people who may be trying to game their rewards programs. For example, American Express generally only allows you to earn the intro bonus on one of their cards once per lifetime. If you close your account, you can apply for the same card again in the future, but you might not be eligible for the intro bonus.

There have also been cases of card issuers taking back points that were earned by someone gaming the system. In a few cases, issuers have even shut down accounts, including checking and savings accounts someone has at the company.

The Drawbacks of Credit Card Churning

Even with the risk involved, some people still look for ways to maximize rewards by churning cards. Would-be churners may keep track of cards' intro offers—which can change over time—and wait until there's a good offer before applying. They may also plan out which cards they'll apply for over the next couple of years based on the offers and card issuers' rules.

The main goal of credit card churning is the same as it always was—earning rewards from credit card intro bonuses. However, card issuers' monitoring and restrictions has resulted in a growing list of cons. The big downsides include:

  • A card issuer shutting down your accounts, which may include all your credit card and bank accounts.
  • A card issuer taking back rewards if they feel you gamed the system.
  • You could spend more money on annual fees, interest and additional purchases than you receive in rewards.
  • Credit card churning could hurt your credit scores.
  • The potential to build up debt you can't pay down.

These risks and the ethical gray area churning presents are enough reason for many to decide it isn't for them. Not only that, churning may be extra risky or impossible if:

  1. You have bad credit. The credit cards with the best offers generally require a good to excellent credit score.
  2. You're preparing to apply for a large loan. Applying for multiple credit cards, particularly in a short period, could hurt your credit scores. If you plan on applying for a mortgage or auto loan soon, you want to make sure your credit is in tip-top shape.
  3. You can't afford the spending requirements. You'll need to meet credit cards' minimum spending requirements to earn the intro bonuses. But spending with a credit card in pursuit of rewards can easily cause you to carry a balance, which results in interest costs and other consequences. A high balance could cause you to spend more on interest than you receive from the rewards.
  4. You don't want to invest the time. It can take a lot of time and energy to keep track of your applications, progress with minimum spending requirements, open credit card accounts and the card issuers' policies. It's easy to make mistakes that could hurt your credit or more than wipe out the value of the rewards you earn.

Credit card rewards earned responsibly can be a great way to save on your credit card bill and earn rewards points for a trip, but churning is something that's outside a lot of cardholders' comfort zone.

How Can Credit Card Churning Affect Your Credit?

Credit card churning involves frequently and repeatedly opening new credit card accounts. Even if you're not trying to churn cards, opening multiple credit cards can impact your credit scores in both negative and positive ways. Here's a closer look at why this can happen.

  • New hard inquiries: Each credit card application can lead to a new hard inquiry on one or more of your credit reports, and hard inquiries may hurt your credit scores. Applying for multiple credit cards within a short period may lead to a large score drop. And, hard inquiries can occur even if the card issuer rejects your application.
  • Lower your average age of accounts: Credit card churning can also hurt your credit scores because each new account will lower the average age of the accounts in your credit reports. In general, a higher average age of accounts is better for your scores. Closing an older account won't impact this factor immediately, as FICO® Scores consider closed and open accounts in your credit reports when determining the average age of your accounts. Card accounts closed in good standing stay on your credit report for up to 10 years.
  • Affect your utilization rate: Opening many new credit cards can cause your available credit to increase and lower your credit utilization rate. However, making the purchases required to earn points, rewards and intro bonuses could easily cause your credit utilization to spike and drag your scores down in the process.

Because credit card churning involves managing a lot of credit card accounts, it may also increase the likelihood that you accidentally miss a credit card payment. A missed payment could lead to penalties and interest. And, falling 30 days behind could lead to a late payment in your credit reports, which could hurt your scores.

A Better Way to Accumulate and Maximize Rewards

You don't need to dive in and make earning credit card rewards a part-time job or hobby to benefit. Instead of trying to learn all the rules and manage a handful of accounts, you may want to look for one or two of the best rewards cards that will offer good benefits with continued use.

If you want to try a more complex option to maximize your rewards, you could look for complementary cards from the same card issuer.

Monitor Your Credit Cards and Report

Whether or not you're interested in credit card churning, monitoring your credit card accounts and reports can be important. You don't want to miss a payment and have to pay fees or hurt your credit. And, you want to make sure no one is using one of your cards or fraudulently opening a card in your name. One way to do this is with an Experian account that offers a free credit report and free credit monitoring with alerts key changes.

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