Credit card churning involves applying for multiple credit cards over a period, primarily to benefit from the substantial signup bonuses that many card issuers offer to new customers. These bonuses often come in the form of points, miles, or cash back, and usually require the cardholder to spend a certain amount within a specified period.
The churning process typically follows a pattern: apply for a new credit card, reach the spending requirement, claim the bonus, then either close the account or stop using the card. Afterward, the churner moves on to the next card and repeats the process.
The Appeal of Credit Card Churning
The primary appeal of credit card churning is clear: it’s a way to accrue substantial rewards in a relatively short period. With the right strategy, churners can earn free flights, hotel stays, cash back, and other perks faster than they would by sticking with a single card.
The strategy can be especially beneficial for people who have significant regular expenses that they can put on their cards and pay off in full every month. By strategically opening and closing accounts, they can continually earn signup bonuses instead of settling for the slower accrual of points offered by many cards.
The Risks and Downsides
However, credit card churning is not without its risks and potential drawbacks. Here are a few key factors to consider:
Credit Score Impact: Applying for multiple credit cards within a short period can negatively impact your credit score. Each application results in a hard inquiry on your credit report, which can temporarily lower your score. If you’re not careful, this can make it harder to get approved for credit in the future.
Financial Discipline: Credit card churning requires a high level of financial discipline. You need to pay off your balances in full each month to avoid interest charges that could negate the value of your rewards. You also need to keep track of various cards’ terms and conditions, as well as any annual fees that might apply.
Changing Rules and Regulations: Credit card issuers are well aware of churning and have implemented measures to prevent it. For instance, some issuers have rules restricting the number of cards you can open within a certain period or the frequency with which you can earn signup bonuses.
Impact on Long-Term Relationships with Banks: Banks and other financial institutions value long-term customers. Regularly opening and closing accounts can damage these relationships, potentially affecting your ability to get approved for other types of credit with these institutions in the future.
Is Credit Card Churning Right for You?
Credit card churning can be a lucrative strategy for those who are disciplined, organized, and have a thorough understanding of the credit system. However, it’s not for everyone. The potential rewards must be weighed against the risks, including the impact on your credit score and future creditworthiness.
Before starting a churning strategy, it’s important to do your research and understand the implications fully. Consult with a financial advisor, and ensure that you’re not putting your financial health at risk for the sake of short-term rewards.
Credit card churning represents an interesting intersection of consumer savvy and financial discipline. As with any financial strategy, what works for one person may not work for another. Therefore, understanding the potential benefits and risks involved is paramount before diving into the world of credit card churning.
