What is Credit Card Churning?

Many rewards credit card issuers offer attractive introductory signup bonuses to encourage consumers to apply for credit cards. Some consumers use credit card churning to take advantage of these bonuses. This is the practice of opening multiple credit card accounts to earn rewards and sign-up bonuses. Credit card churners typically redeem their bonus rewards once they have earned them.

How does Credit Card Churning Work?

There are two types of credit card churning.

(1) When a churner repeatedly applies for the same card.

(2) When he/she applies for multiple credit cards regularly.

Repeatedly applying for the same credit card

This is how it works: A churner applies to a credit card and earns any sign up bonus rewards. Then, the card is cancelled before the next annual fees are due. Many rewards credit cards do have an annual fee, especially those that offer lucrative sign-up bonuses. The churner applies for the credit card again, earning the sign up bonus. This process continues for as many cycles the churner can afford.

Applying on a Regular Basis for Multiple Credit Cards

This scenario is where churners apply for credit cards from different card issuers on a regular basis. After they have earned a sign-up bonus for a credit card, they can redeem the bonus and any accrued rewards to move on to another card with a different sign up bonus. The original card can be canceled, just as in the previous scenario.

There are downsides to credit card churning

Credit card churning doesn’t mean that you just fill out a credit card application, then sit back and wait for the rewards and sign-up bonuses to roll in. Credit card churning can also lower your credit score. However, there are other downsides, such as:

There are a minimum spending requirement

To earn sign-up bonuses, many rewards credit cards require that you spend a minimum amount. Cardholders who fail to meet these requirements forfeit the bonus. A churner may sign up for a rewards credit card with travel benefits that will award 60,000 miles. However, in order to earn these miles, the cardholder must spend at least $3,000 within the first three months. The bonus will not be awarded if the churner does not have the funds to make $3,000 in purchases within three months. To earn the bonus they must pay the minimum monthly payment and interest on any balance. They may lose any reward or bonus they receive due to the interest they pay on these purchases.

Credit Card Churning can be Time Consuming

A few credit cards per year is enough to keep a casual churner busy. If you want to win it, however, churning requires constant research and filling out credit card applications. You must also redeem rewards and close accounts.

To Qualify For Most Cards Worth Churning

Customers with better credit ratings and a track record of credit are more likely to be approved for rewards credit cards. If your credit score is not high enough, or you have poor credit, it’s unlikely that you will be eligible for the credit cards that could make your churning worthwhile.

Churning can be costly

A credit card worth churning will usually require you to pay an annual fee. This is typically added to your first billing cycle. This fee can vary from card to card and could run into the hundreds of dollars. You’ll be charged interest if you fail to pay the outstanding balance each month. This could negate any rewards you may earn. You could be charged late payment fees if you fail to make a payment on time. This could lead to you losing any rewards you earn.

Churning could affect your ability to get other credit

Creditors may also see you constantly applying for credit, and could make credit score deductions due to hard inquiries or increased credit utilization. This perception can lead them to view you as a more risky applicant. This perception can lead to you being denied credit for any other credit you desire, such as a mortgage or auto loan.

Card Issuers have Implemented Policies and Procedures to Make Churning more Difficult

Although credit card churning doesn’t constitute an offense, it can be expensive for card issuers. This is why many have taken steps to prevent card churners gaming the system. These steps include, but aren’t limited to:

Minimum Spend Requirements As mentioned, requiring churners meet minimum spend requirements can help to prevent or at least slow down credit card churning.

Annual Fees – Higher annual fees discourage churners applying for credit cards.

Limitations on Bonus-Earning: There are some card issuers that place restrictions on the number of times you can receive a sign up bonus on one their cards. American Express allows applicants to only earn a bonus one time in their lifetime for a specific type of card. 1 Other card issuers have different limits. For example, you must wait 24 months after closing the card to be eligible for another sign up bonus.

Application Limits: Credit card issuers often have rules that limit the number of credit cards they will issue to you, how frequently you can apply for credit cards with them, and how many times you are eligible for bonus rewards.