The Ultimate Guide to Credit Card Churning

Credit card churning is an activity that involves high risk, high rewards policy. When you start getting rewards, you may get them at a quicker pace as compared to a normal credit card being used regularly.

Credit Card Churning

If you are a frequent user of credit cards then you must be aware of the term credit card churning. If not, then this article tells you everything you need to know about this process.

What is Credit Card Churning?

The term credit card churning refers to the opening of a new credit card to avail of all the benefits without the intention of using it ever again. You might be thinking of this procedure as illegal but that is not the case. It is performed by a lot of users and is controversial too. It is a frustrating thing for the card issuers as well. 

By the time the card issuers find the real culprit, people have created multiple accounts and used the bonus provided with every new card. As they find themselves being caught, they stop using them or close their accounts. After a few months, the churners get started on the same procedure again and earn bonuses.

To combat this, several card issuers have tried to work on their terms and conditions and make the procedure less lucrative. You will not be issued an alternative card if you have already opened 5 cards within the last 24 months. The companies are trying to become more firm in forming their laws and maintaining the legalities.

The Concept Of Credit Card Churning

  • The primary aim of credit card churning is to earn reward points and bonuses by opening multiple accounts and getting access to new credit cards. 
  • When the credit card is issued, the card issuer marks a notation on the credit card report that cuts a few points off your credit card score. This is termed a hard inquiry. 
  • This inquiry stays on the report for a time period of up to two years and as you keep on collecting them, the impact is enhanced. 
  • Also, people who have 6 or more inquiries noted on your credit card report are likely to get bankruptcy declared as compared to the users who don’t have any.
  • Further, the card churners may also be trying to collect the reward points. The lenders or card issuers may also think that the user is trying to maintain financial stability by earning profits and bonuses by opening multiple accounts. 
  • The opening of multiple accounts can also act detrimental for you and can lead to drops in your credit card score.

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How does credit Card churning work?

Credit Card Churing

The people who work on credit card churning use a lot of tricks and tactics to do so. The usual steps followed by them to earn profits are listed below.

1. Comparing credit card offers

The first step is to look for some of the best rewards and airline offers present in the market. Doing this research helps in matching your bonus points with the reward goals. Apart from this, they also look for offers that provide a $0 annual fee in the initial year.

2. Apply for Credit Cards:

You must look for the eligibility criteria to apply for your card and know about the credit card score. Keeping a check on scores is a must as the offers often require high scores. Once this is done, you can apply for it online and get it received in around 10 days when approved.

3. Calendar reminders:

As a part of your strategy, you should set reminders because there are specific timings for getting the bonuses and avoid extra charges. You can set them for the minimum spending deadline, due date, and the card’s anniversary. 

4. Meeting the requirements

The spending requirements are different for different offers and need to be completed on time. These are necessary to be fulfilled.

5. Complete card’s balance

The amount on the due date is necessary to be paid to avoid any kind of interest charges. Clearing off the card’s balance is an important step that needs to be performed.

6. Keep a check on the rewards account

Once the spending amount requirement is completed, you must keep on checking the rewards account. It can take up to 8 weeks before you receive the points.

7. Cancel the credit card

As the rewards section receives the bonus, it is now the time to cancel the card. It is aimed to resist paying the second annual fee.

8. Apply for the next bonus point

Once the previous card has been cancelled, you need to start applying for the next bonus card. As the inquiries keep on getting added, the churners may want to create a gap of a few months before applying for the next one.

Scenarios That Are Considered In Credit Card Churning

  • While credit card churning, you must also look at the possible damages that can be caused by opening multiple accounts. You need to be careful while spending on them as it can cause a negative effect on your credit scores as well. You have to be careful while performing the entire process and keeping your account safe.
  • If you go for multiple applications in quick succession, it lets the lenders think that you are financially stressed and you are more into notice. Therefore, it is important that you maintain a gap of at least six months before applying.
  • You must also focus on keeping your credit utilization ratio to a minimum. The lower the score, the better things will work out for you. 

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Pros And Cons Of Credit Card Churning

Pros Of Credit Card Churning

  • When you sign up for more and more credit cards, you increase your chances of getting rewards and receive the benefits out of it. The primary advantage of credit card churning is that you receive bonuses out of it.
  • As compared to regular use of the credit card, the process of credit card churning lets you earn the rewards on a given card much quickly. It is a faster process of receiving rewards.
  • The card issuers or lenders do not let you stick with a credit card. Once the card is issued, you are free to stop using it or blocking it whenever you wish to do so. You always get the sign-up bonuses without getting stuck with using them permanently. You can apply for other cards at any time.

Cons Of Credit Card Churning

  • The card lenders have devised new ways to limit the practice of credit card churning among users. The number of cards to be issued has been limited per individual. It will help in limiting the opening of multiple accounts and reducing the number of bonuses that you will receive in a given amount of time.
  • Another thing is that when you apply for a new credit card, a new inquiry gets added to your report that lowers your credit score by 5 points. This is because the inquiry makes up 10% of your credit score. Now, if you apply for multiple cards frequently, it will cause a substantial decrease in your credit card score. The average credit age that accounts for 15% of your score is also affected and may get lowered due to churning.
  • When you apply for several credit cards in a short duration of time, it gives the lenders the signal that you may be financially stressed and therefore are at credit risk. It doesn’t matter if you have excellent credit, the lenders will still resist issuing you any card further. 
  • While applying for a card, you are required to meet specific minimum spending criteria to earn the welcome or sign-up bonus. If you avoid spending the minimum amount or are unable to do so due to any reason, you will end up being in debt for a long time. 
  • Sometimes, the rewards provided on credit cards come with an annual fee. The fees can also be charged for the second year as well. If you fail to pay the fee then it can lead to a decrease in the sign-up bonus that you are going to receive.

Guidelines For Successful Churning

Here are some guidelines to make your credit card churning successful.

Credit Card Churning
Credit Card Churning
  • Look for credit card offers

You should not become relaxed and satisfied after seeing an offer on a website at a time. You need to look out for different credit card offers. Sometimes, the companies provide users with limited time offers that are effective enough to provide you with high-quality bonuses. You may also go for credit card comparison websites to know the worth of various cards.

  • Succession Period

If you want to apply for multiple cards they must have a gap of at least 6 months between applying for them. It will help you prevent the damage that might be caused to your credit score.

  • Do not ignore the fees

If you do not want to pay the annual fee, you should keep a check on the credit cards that offer a no-fee rule. The other way is to cancel the card just before the date to pay the annual fee comes near. 

  • Make payments on time

You must make your monthly credit card payment on time to avoid paying any late fees later. It also prevents any kind of damage to your account. If a late fee appears, it may become difficult for you to get approval for rewards in future.

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The Worth Of Credit Card Churning

  • Credit card churning is good for you when you have a record of using the cards responsibly. The results are effective enough if you have been making payments on time and have been playing fair.
  • Further, you need good credit to go for credit card churning. It acts as a qualifying score for getting the rewards on your cards. This will help you in getting the most lucrative sign-up bonuses.
  • To meet the spending requirements while signing up, you may be required to pay large amounts of money on their purchase. If you are used to paying in the given range then you can manage the debts if any.
  • You must have the time to keep a check on the progress of multiple cards and how bonuses can be earned from them. 
  • To enter the field of churning, you must have some experience of using the cards. The beginners do not know how to handle the minimum spending amount and deal with the debts. They may even forget to keep a check on the progress taking place. In this case, if the credit card score gets affected, it will become a time-consuming process for you to clear the debts and start gaining the rewards again. Also, it may get difficult for them to climb out of the mountain of debt.

Key Takeaways

The process of credit card churning involves opening multiple credit cards to get the benefits from the bonus that will be received upon signing up. As the cards increase, the previous ones are made to stop working or cancelled.

Credit card churning is an activity that involves high risk, high rewards policy. When you start getting rewards, you may get them at a quicker pace as compared to a normal credit card being used regularly. However, frequent churning increases the risk of lowering your credit card score or getting caught in the vicious circle of debts. To avoid getting charged with a late fee, you should keep a check on the strategies that you are opting for.

Also, this process is best for the people who have stellar credit and are in a habit of spending a lot. To perform this process, one needs to have time to invest and maintain a record of multiple cards.

It is important that you make the payments on time to avoid paying late fees or fines. You must make sure that you keep a record of churning every month and do not lose track of how much you are spending and on whom. Not paying attention to such things can make you lose your quality rewards. Always monitor your monthly credit card score and should keep a record of the information related to cards and their issuerṣ.

Frequently Asked Questions

Is churning credit cards illegal?

Churning credit cards is not illegal but it acts as one of the frowning deeds done by the people. This method of gaining rewards is no more a secret and is known by every card issuer. The card churners need to conduct proper research and maintain track of their multiple cards to avoid getting into trouble. However, card issuers and their related companies have become stricter on creating policies that tend to limit the card issuing process. 

Do you cancel credit cards when churning?

Once you have got into the business of credit cards churning, you will get to know that as the rewards and bonuses are received, the people stop using the cards or get it cancelled. However, cancelling the card will leave you with an overall lower credit score. Further, the hard inquiries keep on getting added to your credit card score.

Is credit card churning bad for your credit score?

Credit card churning lets you apply for multiple credit cards and receive the sign-up bonuses. However, if the succession periods between the cards is less, it creates your image of a risky borrower. As soon as you apply for a new card, the average age of your credit cards is reduced and affects the length of credit card history.