Have you ever heard of the term credit card churning? No, it’s not some new-fangled credit card scam. Churning is the act of signing up for credit cards with large sign-up bonuses and then canceling the card before the annual fee hits.
Gaining all the possible awards before having to pay for anything definitely sounds appealing, but should you do it, and is churning legal? Let’s find out!
What Is Credit Card Churning
Churning is the practice of frequently opening and closing credit cards to earn rewards, such as cashback or points. Churners typically open multiple cards at once to maximize their rewards, then close the account before the annual fee is charged.
Why do people do this? The answer is simple — points and miles. Churning can be a great way to rack up reward points that you can use for travel, for example. With enough points, you could even book an entire vacation for free.
Is credit card churning illegal? No, churning is not illegal. However, there are a few things you should be aware of before you start churning.
First, credit card companies don’t like it when people open and close accounts frequently. If you do it too much, they may flag you as a credit risk and either close your accounts or deny you new ones.
Furthermore, many banks have implemented policies to prevent credit card “churning.”
For example, American Express prevents new cardholders from getting more than one welcome bonus per card in their lifetime.
Chase has a similar restriction. Its 5/24 rule prevents you from getting a new credit card if you’ve previously opened five cards in the last 24 months.
Second, churning will have a negative impact on your credit score. Although it may not cause a lot of damage (only 10% goes on new credit inquiries), it has the potential to alter how current or prospective credit card issuers see you as a customer.
Churning 101: How to Do It
Churning is a strategy employed by many rewards-savvy credit card users. And it’s not as difficult as it may seem. However, churning is appropriate only if:
- You make your payments on time and in full each month.
- You have a good or excellent credit score.
If you meet the above criteria, you may be ready to start churning. Here’s how it works.
Step 1: Keep an Eye Out for New Credit Card Deals
To find the best credit cards for churning, take into account the annual fee, sign-up bonus, and rewards structure. Also, make sure you are aware of any credit card application rules (such as Chase’s rule).
Step 2: Don’t Open Too Many Accounts in a Short Period of Time
If you apply for multiple credit cards in a short period of time, it will send up a red flag to credit card companies. So, try to space out your applications every few months.
Step 3: Read the Terms and Conditions
Always read the terms and conditions before you start churning credit cards. This way, you’ll avoid any unwanted surprises.
Some credit card companies will give you a bonus only under specific criteria. For example, you may earn 60,000 bonus points if you apply for a Chase Sapphire Preferred credit card and make $4,000 worth of purchases within the first three months.
However, you’ll be eligible to apply for the card only if you’ve never had a Chase Sapphire card.
Step 4: Use Your Credit Cards Wisely
This one should go without saying, but make sure you use your credit cards responsibly. I.e., don’t spend more money than you can afford to pay back and always make your payments on time.
If you’re not careful, credit churning can become a dangerous addiction. It’s important to remember that the goal is to earn rewards, not get into debt by wasting money on unnecessary items.
Step 5: Keep Track of Your Points as You Earn Them
Lastly, make a spreadsheet to keep track of key information for each credit card you’re applying for. Here’s an example of a good credit card churning flowchart.
Step 6: Cancel Your Credit Card Before the Annual Charge Comes Due
Once you’ve earned the sign-up bonus, it’s time to cancel the credit card before the annual fee is charged. Most credit card companies will allow you to cancel the card online or over the phone.
Step 7: Repeat as Necessary
You can repeat this process as often as you’d like, provided you can find new credit card offers and meet the minimum spend requirements. Just keep an eye on your credit score and credit utilization ratio.
When to Avoid Churning
As you can see, it’s pretty easy to churn credit cards, but that doesn’t mean you should just start doing it right away. There are a few reasons you might want to avoid churning:
- You have a spending problem. If you cannot control your spending, churning will only worsen your problem. You’ll be tempted to spend more money to earn rewards, which can quickly lead to debt.
- You have bad credit. Churning is probably not the best idea if you have a bad credit score. You’re likely to be denied several credit cards, which will hurt your credit score even more.
Conclusion
Churning bank accounts can be a great way to earn rewards if you’re a responsible spender with a good credit score. However, it’s not for everyone.
If you are struggling to control your spending, you should avoid it at all costs. You don’t want to end up in credit card debt just for the sake of earning rewards.
So make sure to weigh the pros and cons before deciding if churning is right for you.
FAQ
What is credit card churning?
Churning is the act of applying for new credit cards to earn rewards, such as points, miles, or cashback. Churners often cancel their credit cards after a few months to avoid paying the annual fee.
Does credit card churning lower credit score?
Yes, churning can lower your credit score. Namely, new credit inquiries account for 10% of your FICO score. So, if you open several credit card accounts in a short amount of time, your credit score will be harmed.
That is why it’s a good idea to wait at least six months between credit card applications.
How many credit cards can you churn in a year?
There’s no set number of credit cards you can churn in a year. It really depends on your credit score and credit history. If you have good credit, you may be able to churn several credit cards. However, if you have bad credit, you may only be approved for one or two new credit cards.
How much do you make from churning?
The amount of money you can make from churning depends on a number of factors, such as the credit cards you’re using, the rewards you’re earning, and your spending habits. In general, credit card churning can generate anywhere between $500 and $1,000 a year.
