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We’ve all heard about what we’re “supposed” to do with credit cards: carry only one or two, spend carefully, pay them off on time and in full. These rules are simple and straightforward — only people who are irresponsible with money use credit cards differently, right?
Well, not exactly. In fact, with all the great rewards programs out there, a growing number of creative spenders known as “churners” have started putting the rules aside to get the most out of the perks that credit card companies offer for signing up with the card.
Not sure how credit card churning works or if it’s right for you? Take a look at the details below to decide:
What is credit card churning?
Credit card churning seems simple in theory, but is somewhat difficult to do correctly. Put simply, credit card churning works like this: you find several credit cards that offer a reward you’re interested in – say, airline miles – and a sign-up bonus. You apply for all of those cards, and once you receive them, you spend enough to get the bonus miles. You then stop using the cards, and cancel them before you have to pay any fees. Then, you repeat the process. This way, you’re able to rack up rewards more frequently than you would if you stuck to just one or two cards.
Some churners are so dedicated that they’re able to get lots of freebies – like trips, hotel stays, or plain old cash – a few times a year, all for just using the right cards.
Credit card churning might seem like an easy way to get cool stuff, but this strategy isn’t right for everyone. In fact, there are serious pitfalls that churners can fall into if they’re not careful.
Churning and your credit
One of the major risks associated with credit card churning is the damage it can do to your credit. This is because the things you’ll have to do to get the best rewards – opening lot of cards and spending on them regularly – can have a negative effect on your credit score if you're not careful.
For example, 10% of your credit score is determined by the number of new credit accounts you’ve opened recently. In general, experts recommend shopping for new credit within a 30-day window to minimize dings to your score. This is why churners usually apply for several new cards on one day, then wait several months to apply for new cards. But if you’re not careful about your credit card applications, your credit could take a hit.
Another way churning could hurt your credit is if you forget to make a payment because you’re juggling so many cards. The largest portion of your credit score – 35% - comes from your history with paying your bills on time. If you’re spending on lots of different cards to earn as many rewards as possible, the chance that you’ll forget to pay a bill by its due date increases. Again, this won’t happen if you’re very careful – but it’s easy to get burned if you’re not.
Finally, closing your credit cards can also ding your score. It's much better to pay off your balance and not use the card again. Just be sure that you're not paying annual fees. If your card has one, you can downgrade to a no-annual-fee card and keep the same account.
Aside from the damage you could end up doing to your credit score with credit card churning, there are other hazards to be aware of. The truth is, some people just aren’t cut out for credit card churning. You should definitely think twice about using this strategy to earn rewards if:
You’re planning to buy a home soon: Mortgage lenders don’t like to see lots of opened and closed accounts on your credit history, so if you want to take out a home loan sometime soon, churning isn’t a good idea.
You have a history of getting into credit card debt: The key to successful churning is paying off balances before being charged interest, but if you have a history of getting in over your head with credit cards, this might be hard for you to follow through with. Don’t tempt yourself – just say no to churning.
You’re not organized: Keeping up with spending requirements, due dates and fee schedules is a lot of work, so if you’re not organized, churning might not be for you.
Credit card churning is great way to quickly pile up rewards, but it takes a very dedicated spender to do properly. For many people, credit card churning is more trouble than it’s worth, so think carefully before playing this game.