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 have resulted in a growing list of cons. The big downsides include:
A card issuer is shutting down your accounts, which may include all your credit card and bank accounts.
A card issuer is 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:
You have bad credit. The credit cards with the best offers generally require a good to excellent credit score.
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.
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.
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 point 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, the 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 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 complimentary 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 must 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 and key changes.
Potential risks of credit card churning.
While the promise of thousands of bonus points can make it very tempting to churn credit cards, this strategy comes with some big risks and potential issues both in the short term and long term. Some of the pitfalls you may notice early on include:
Increased spending. Credit card bonus point offers usually require you to spend thousands of dollars within a set amount of time. If this amount is higher than what you usually spend on a credit card, it could have an impact on your budget or lead to interest charges.
Credit card fees. While some credit cards that offer bonus points may waive the annual fee for the first year, there is a good chance you’ll have to pay account fees for some of the cards you get. This means you’ll need to calculate the value of the bonus points, compare it to the annual fee costs and decide if it’s worth it to get the full value out of churning.
Credit card debt. Increased spending and account fees also lead to a higher risk of credit card debt. While the goal with churning is to keep rates and fees to a minimum, it often requires careful account management to achieve that. The more cards you get, the more difficult that may become.
Credit card churning and your credit score
One of the biggest potential issues with credit card churning is the way it can affect your credit score. This is because each time you apply for a new card, meet the bonus point spend requirements, then cancel the account, you’re adding details to your credit history that could hurt your credit score. This includes:
Multiple inquiries from lenders. Whenever you apply for a new credit card, the card issuer makes a hard pull on your credit. A lot of inquiries in a short amount of time can have a negative impact on your credit score because it suggests you’re shopping around for products.
In the worst-case scenario for lenders, it could show someone is desperate for credit. Each inquiry can stay on your credit history for up to two years, so any potential lenders will be able to see how frequently you’re applying for new credit cards.
Decreasing the length of your average credit account history. At the same time, accounts that have been open for a long time that have good repayment history are usually seen favorably. Those that are closed soon after opening can have the opposite effect. This is because it can suggest instability and a lack of financial commitment.
Eliminating cards with good payment history. If you regularly pay off your account on time — which is the goal with credit card churning — this is seen as positive information that could improve your credit score. But canceling those cards once you have the bonus points means that this information is no longer relevant, so it could hurt your credit score in some cases.
Changing credit limits. Every time you open a new credit card account, your credit limit is added to your credit report. Lenders consider the ratio between your available credit and your debt. Every time you open a new card, your new credit limit is added to your utilization rate, and it positively affects your score. The opposite is also true — close your account, and you lose your available limit, thus increasing your utilization rate.
