“What is Credit Card Churning?”
Credit card churning is the process of applying for credit cards several times a year, spending on them to earn a big introductory bonus, and then closing them out before the annual fee comes due.
It sounds cray cray but it’s true, and there is a small but vocal community of people who do this as a hobby and earn thousands of dollars in rewards each year in the process. If you recall, I used my credit card points to fly first class a few times, and I don’t regret it at all.
Credit cards regularly offer rewards of $200 – $500 or more for signing up. So, why use your cards for years and just earn a standard one point per dollar when you can earn thousands and thousands of points by just meeting bonus offers of new cards?
For example, you might find an offer that gives you $400 in reward points after you spend $3,000 in 3 months on a new card. So for the first $3,000 you spend on your card, you’ll earn over 13% in rewards back ($400/$3,000 in spending). After that, you can churn another card with an offer and earn something similar by putting your everyday spending on it for the next few months. You can also find other creative ways of moving money around to meet these minimum spend requirements by doing some research and talking to others on churning forums.
Yeah But What’s the Catch?
First, you need to have excellent credit. You can earn hundreds of thousands of miles in rewards, but the best offers are only for those with the best credit. For example, this year there is actually a 100,000 mile American Advantage bonus offer that I am considering getting, but it’s only available on its high end credit card that comes with a hefty fee. Still, it might be worth it, since 100,000 miles is a round trip first class domestic ticket and could even be a round trip international ticket if you are looking in the off season. Just as an FYI, a credit score of 720 or higher on a scale of 850 is considered excellent, and that’s what is typically required for these cards.
Second, you shouldn’t be applying for a mortgage. Applying for a credit card will lower your score modestly – about 5 points for each application (so lots of people try to time multiple applications and thus their credit “hits” on the same day.) This effect lasts at most a year on your score, but often lessens too since the more cards you open means you end up having more credit available to your name, a good thing for your score. But if you are about to get a mortgage or other big loan (which I am not) and are borderline on being qualified, they may frown upon opening too many card accounts just prior to applying for the loan. So, use this wisely!
Third, you need to be able to pay cards in full each month. Credit card companies make good money on your forgetfulness. If you forget to pay off a card in full, you’ll be hit with interest charges on your balance for the month, and those charges lower the value you’re getting from sign up offers. It’s not worth it to go after rewards if you can’t pay your rewards cards in full each month. So, if you want to get into this hobby, make sure your finances are under control and you are ready to take on this responsibility.
Fourth, you need to be able to keep track of when you applied. Most cards with a good reward bonus offer carry an annual fee after the first year. There’s a good chance you may want to keep some of the cards you try out, but some you won’t want to keep and cancel before the annual fee is due. If you end up applying for several cards, it’s a good idea to set a reminder on your smart phone calendar for a year from now, when the annual fee will come due.
Finally, don’t be greedy about it. Banks want you to switch to try out their products, and they are willing to pay nice offers to do it. But if you abuse a single bank by applying for say 5 of its cards a year and cancel them all right away, you’re sending a message you’re not a good customer, and it will raise red flags. Better to apply for a few cards spread out over different banks throughout the year, and you’ll still earn hundreds, even thousands of dollars in rewards from your regular spending.
So, now that I’ve answered the big question – “What is credit card churning?” – I have to ask you something: Are you game?
P.S. As with any financial tips on here, please use with your own risk. My blog is just for funsies and entertainment purposes, and while I enjoy churning credit cards, it might not be right for you.