Definition and Example of Credit Card Churning
Credit card churning involves frequently applying for new credit cards, not necessarily to use or even keep them but rather to take advantage of lucrative sign-up or welcome bonuses in the form of cash or rewards miles or points.
By opening many cards, you can rack up a significant number of miles or points or a hefty sum of cash back within a short period. As such, the strategy can be rewarding for savvy credit card users albeit risky for the average consumer. In recent years, credit card issuers have put practices in place that limit churning.
How Credit Card Churning Works
Many credit card issuers offer attractive sign-up bonuses on credit cards to entice consumers to apply for cards and put a significant amount of spending on them soon after account opening. Depending on the card, new cardholders can earn rewards such as cash back, airline miles, or points that they can redeem for purchases if they meet a minimum spending requirement within a certain time frame—often within three months of opening the credit card.
To receive many of these sign-up bonuses—and receive many valuable rewards—in a given year, some consumers resort to credit card churning as follows:
- Identify two or more credit cards that offer attractive sign-up bonuses in the form of your preferred rewards (for example, cash back, airline miles, or points) and don't impose a requirement to use the card again or keep the account open for a certain period of time after you get the bonus.
- Apply for the credit cards, either simultaneously or in succession with only a short period of time in between applications (usually less than three months).
- Meet the spending requirement for the cards and receive the bonuses.
- Stop using the cards or cancel them before you incur annual fees.
- Repeat the above process to take advantage of more sign-up bonuses.
Balance transfers and cash advances usually don't count as purchases and therefore won't help you reach your spending minimums. Both typically incur fees, which you want to avoid to get the maximum benefit from credit card churning.
Pros and Cons of Credit Card Churning
Receive more rewards.
Earn rewards faster.
Freedom to stop using the cards.
Card issuer rules limit the practice.
It can damage your credit.
The odds of credit denial increase.
It can increase your debt.
Annual fees may eat into rewards.
- Receive more rewards: Signing up for several credit cards lets you rack up far more cash back, miles, or points from sign-up bonuses than you'd get with just one credit card.
- Earn rewards faster: Credit card churning also lets you earn rewards for a given card more quickly than you would through everyday use of that card. For example, suppose that a cash-back credit card offers 1.5% cash back on all purchases and a $150 cash-back bonus if you spend $500 within the first three months. You'd ordinarily have to make $10,000 in everyday purchases (which could conceivably take a year or longer) to earn the same $150 you could earn within three months by spending only $500.
- Freedom to stop using the cards: In general, card issuers don't impose a requirement to use the card again after receiving a sign-up bonus, or even to keep the account open after you get the bonus. If you applied for a card that had an attractive sign-up bonus but lackluster rewards for everyday spending, you're not stuck with it; you can always switch back to using other cards.
Consider combining rewards from loyalty programs or using rewards program shopping portals to maximize the rewards you earn.
- Card issuer rules limit the practice: Many issuers have enacted policies to discourage churning by limiting the number of cards you can open or the number of bonuses can you receive in a given period. For example, Chase has an unofficial "5/24" rule that keeps consumers from opening more than five credit cards in a two-year period. American Express allows cardholders to earn only one bonus per credit card. Once you've earned a bonus for a specific card, you won't be able to "double-dip" as it were and earn the bonus again for that same credit card.
- It can damage your credit: Every time you apply for a credit card, the lender makes a hard inquiry into your credit report. Inquiries make up 10% of your credit score, and while a single one will typically only reduce your score by five points, you may see a more significant negative impact on your credit if you incur several in a short period of time. Opening new accounts can also lower your average credit age—a factor that's 15% of your credit score.
- The odds of credit denial increase: If you've opened or applied for too many credit cards in the past 12 to 24 months, credit card issuers may deny your credit card application, even if you have excellent credit, because they view excessive recent credit applications as a sign that you're in financial distress and are a credit risk.
- It can increase your debt: Each card you sign up for will require you to meet a spending minimum to earn the welcome bonus. If you take out several credit cards, but can't afford the spending minimums, you could end up with more debt than you can repay, rendering moot any rewards you may have earned.
- Annual fees may eat into bonuses: Many rewards credit cards come with annual fees—rather hefty ones in some cases. Sometimes, the fee is waived for the first year, but you'll be on the hook to pay it afterward. If you forget to cancel a card you don't plan to use, the fee can diminish the value of the sign-up bonus you received for the card.
Increasing your spending just to earn bonuses puts you at risk of building up credit card balances you can't afford to repay.
How to Do Credit Card Churning
Follow the guidelines below for credit card churning.
Look out for new credit card offers. Don't assume that the offer you see on the card issuer's website is the best one you can get at the time. Card issuers change their offers often, sometimes offering generous limited-time offers to attract new customers or exclusive offers to retain existing customers. When you're interested in a credit card, check credit-card comparison websites, review your mail for targeted offers, or log in to your existing account to find the best credit card offers.
Avoid opening too many cards in a short period of time. If you want to open a few new cards, wait three to six months between applications to minimize the damage to your credit score.
Keep fees in mind. If you're concerned about annual fees, you might want to target only no-fee cards for churning or cancel the card before you incur the fee. If you plan to keep a card with an annual fee, evaluate whether the benefits make paying that fee worth it. For example, you might earn a free hotel stay each year with the card. If the annual fee is lower than a night at the hotel, the card may be worth keeping if you intend to stay at a hotel. It might not be worth it, however, if you rarely travel.
Read the fine print. Reading through the credit card terms is a must, not only to understand fees but to ensure you meet requirements. For example, some credit card issuers only allow you to earn a bonus under certain circumstances. Credit card terms are subject to change, so always read the terms and conditions before applying for a credit card.
Make payments on time. Send your monthly credit card payment on time to avoid late fees and the associated damage to your credit. If a late payment dings your credit score, you might find it hard to get approved for rewards credit cards in the future. You'll also want to pay on time to avoid forfeiting your rewards.
Pay your balance in full each month. Paying the statement balance in full within the grace period allows you to avoid paying interest charges on your balance. If you can't afford to pay off your full balance at the end of each month, reconsider credit card churning; the interest charges may outweigh the benefit of the bonuses you earn.
Set goals for rewards. Have an idea of what you want to spend your credit card rewards for—a vacation or a flight to visit family for the holidays, for example. Knowing how you want to allocate your points in advance will help you choose the best credit cards and keep you from using your points prematurely.
Keep a record of credit card churning. Create a chart or spreadsheet to keep up with important details for each credit card you're opening, including:
- The credit card issuer and the specific credit card
- The date you opened the credit card
- The credit card's annual fee and the date the fee will be charged if it's waived in the first year (if you're not keeping the account, close the account before this date)
- The bonus amount
- The spending requirement and the date by which you need to meet it
- Your progress toward meeting the spending requirement
- Whether the bonus has been applied to your account
- Whether you've used the bonus
- The timing for any promotional interest rate
Monitor your credit. Some credit card issuers include a free credit score within your monthly statement. If none of your cards have this benefit, use a free credit-scoring service to keep tabs on your credit score. Pull back on credit card churning if it's affecting your credit score.
Is Credit Card Churning Worth It?
Churning may be appropriate if:
- You're a responsible cardholder: You should have a track record of responsibly using a credit card and paying your balance in full and on time each month before getting into the business of churning.
- You have stellar credit: You typically need good or excellent credit to qualify for the most premium rewards credit cards with the most lucrative sign-up bonuses.
- You're a big spender: You may have to spend hundreds or even a thousand or more dollars on purchases within a few months to meet the spending requirements for credit card bonuses. If you ordinarily spend in that range, you're more likely to be able to manage the debt that comes with meeting that spending requirement.
- You have the time or interest to sustain churning: Churning is best for rewards card enthusiasts who don't mind keeping tabs on multiple cards and their progress toward earning bonuses for them.
As exciting as it may sound to earn bonus after bonus, churning credit cards is a bad idea if:
- You’ve never had a credit card or have a spending problem: Credit card churning isn't for the uninitiated. It's too easy for inexperienced cardholders or those with an urge to spend (or worse, a mountain of existing debt) to get into more financial trouble. Once your credit score is damaged, it may be difficult and time-consuming to repair. And it can be equally difficult to climb out of debt.
- You have poor credit: If you have negative events on your credit report, like late payments or debt collections, improve your credit before trying to churn credit cards. This will help you avoid being denied credit.
- You’re preparing for a major loan: You may not want to churn cards (or at least put your churning on hold temporarily) if you plan to take out a mortgage or another large loan within the next year or two. The number of inquiries and newly opened accounts can affect your credit score and make it harder to get approved for new accounts.
- You're thrifty: If your current spending isn't high enough to meet the spending requirements, churning could put you in debt and might not be for you.
- You prefer to keep things simple: Ordinary rewards credit cards allow you to earn cash back and other bonuses without churning. If you don't want to keep tabs on multiple cards, consider opening just one or two rewards cards with simple, consistent reward structures.
- Credit card churning involves frequently opening credit cards to get sign-up bonuses and then stopping use of or canceling them.
- It's a high-risk, high-rewards strategy. Rewards include earning more credit card rewards, faster, but at the risk of damaging your credit score or incurring fees or debt.
- It's best suited for those with stellar credit who spend a lot and have the time and interest to keep track of multiple cards.
- Paying in full and on time each month and keeping a record of churning can maximize your rewards.