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Credit card churning isn’t a new thing, but it is becoming increasingly popular as more and more credit card companies offer generous bonuses and incentives for opening their cards. Simply put, credit card churning is opening new cards just to get the benefit of the sign-up offer and then moving on to the next one.
While this can be a great way to rack up rewards, it’s not without its risks. If you’re considering credit card churning, make sure you understand how it works, how to make it work for you and what to watch out for.
How Does Credit Card Churning Work?
With credit card churning, you are constantly opening and closing cards so that you can get the benefit of the sign-up bonus or offer without having to pay fees or interest. Essentially, it’s like getting free money if you manage it correctly. Consider the following example:
- You open a new credit card that has a $100 annual fee waived for the first year, a 10 percent APR and a sign-up bonus that gives you a $500 statement credit if you spend $1,500 in the first three months.
- You use it to pay your groceries for three months, spending $500 a month and paying it off in full to avoid interest charges.
- After the three months, you get $500 as a statement credit you can use on anything.
- Once it’s used, you cancel the card so you don’t have the annual fee.
So, you paid $0 interest, $0 fees, bought $1,500 in groceries you were going to buy anyway and made out with a $500 profit. Now, you move on to the next card and repeat the process.
What Are the Benefits of Credit Card Churning?
As shown in the example above, credit card churning can offer monetary rewards and help you get ahead financially—if you do it right.
You Can Maximize Rewards
The sign-up bonus is usually the best bang for your buck when it comes to credit card offers. Even if you’re dealing with a strong rewards card, the regular rewards are nothing compared to the sign-up bonus. So, if you’re constantly switching between cards and always in a sign-up bonus period, you’re maximizing the rewards you can get for your spending power.
You Can Avoid Paying Annual Fees and Interest
As long as you’re paying your balance in full monthly, you won’t have to worry about accruing interest, which is a plus if a card has a great sign-up bonus but a higher interest rate. Some of the best offers also come with cards that have annual fees, but if the first year is waived, you often don’t have to pay this if you cancel soon enough.
You Can Use “Extra” Money to Pay Off Debts
While it may seem counterintuitive, credit card churning can actually help you pay down debt faster than you could with a balance transfer or similar offer. To do this, you’ll want to focus on cashback cards. You jump through the hoops of the sign-up offer, you get the cash and you put it toward your existing debt.
If the cashback is a statement credit, you might have to use the credit to buy groceries that month and use the grocery cash toward debt, but the premise is the same.
What Are the Risks of Credit Card Churning?
By now, you may be thinking that credit card churning sounds like a great idea and asking why everyone isn’t doing this. The answer is that churning can be extremely complicated and time-consuming to manage, and it comes with a host of other downsides as well.
Your Debt Might Outpace You
If you’re managing multiple offers at once, it’s easy for the debt to start to get out of control. Missing even one payment can end up making the offer null, jack up your interest rates, hurt your credit and cost a decent amount of money in fees.
You Might Spend a Lot on Annual Fees
Most high-rewards credit cards come with annual fees of up to hundreds of dollars. And while there are situations where the first year is waived and if you cancel the card, you won’t have to pay it, this doesn’t always work. Some credit card companies don’t waive the fee for the first year at all, and others have stipulations in the fine print that you have to keep the card a certain length of time to not be hit with fees.
It’s also easy to stop using a card but forget to cancel it until you see that surprise statement with your $450 annual fee that now needs to be paid.
You Might Be Blacklisted by Card Issuers
Obviously, credit card companies aren’t big fans of credit card churning. They want to make money off of their cards, and they need you to be accruing interest or paying fees to do that. If companies realize you are churning, they can blacklist you and refuse to give you a credit card even if you want it for non-churning purposes.
You Might Damage Your Credit Score
This is probably the biggest drawback to credit card churning. Hard inquiries, closing accounts and increasing the amount of debt you owe—even temporarily—is part of the credit card churning process. However, these are also also things that can bring your credit score down, make you less likely to be approved for good cards and get you less favorable terms when it comes to auto and mortgage loans.
Guidelines for Credit Card Churning
If you decide that you want to try credit card churning, here are some best practices to follow:
- Have a specific goal in mind, whether that’s paying off debt or funding a weekend getaway with travel points.
- Read the fine print to make sure that you’re aware of annual fees or cancellation policies before you commit.
- Only take out as many cards as you can handle—organizationally and financially.
- Make all payments on time and in full.
An Alternative to Credit Card Churning?
While credit card churning can seem attractive, it’s still not a get-rich-quick formula. And the bottom line is that when it comes to your credit, the best strategy is to put time into improving your score in the long term so you can qualify for better cards that have great rewards outside of the bonus offer.
To keep your credit moving in a positive direction, make sure to pull your credit reports annually from each credit bureau and keep an eye on your credit score to make sure there aren’t any surprises. As you continue to pay your bills on time and build your credit, you will likely qualify for better cards, better loan terms and more financial opportunities.
