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Credit card advice is often summed up thusly: "Be responsible." And for many, that means carrying only one or two cards — if they carry any at all — and being relatively conservative about how they're used.
But it's a tempting world of credit card perks, benefits and rewards out there, and credit card "churners" see things a little differently than the average user. They open and close credit cards multiple times a year, every year, snagging all kinds of points, miles and cash back in the process. And in some cases, they test the limits of the rules that card issuers set for their products.
It can certainly be lucrative, but it can also be risky and requires a lot of time, dedication and — most importantly — organization. And as with any credit card strategy, responsible use is still key.
Here's what to know about credit card churning.
What is credit card churning?
Put simply, credit card churning generally works like this:
You identify several credit cards that offer a rewards currency you’re interested in — say, airline miles — and a generous sign-up bonus that gives you a large chunk of those rewards upfront.
You apply for those cards, and once you receive them you spend enough to get the bonus points or miles.
You then stop using the cards and cancel them, sometimes before you have to pay an annual fee. (Many annual fees are waived in the first year.)
Repeat the process.
“Some churners are able to get lots of freebies multiple times a year, just by using the right credit cards. But this strategy isn't right for everyone.”
Thanks to those lucrative upfront bonuses, churners are able to rack up rewards more frequently than they would by sticking with just one or two cards and slowly amassing a points stockpile through ongoing spending rewards.
Some churners are so dedicated that they’re able to get a lot of freebies — like trips, hotel stays or plain old cash — a few times a year, all for just using the right credit cards.
But this strategy isn’t right for everyone. In fact, there are serious pitfalls that churners can fall into if they’re not careful.
How churning can affect 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 a lot of cards and spending on them regularly — can have a negative effect on your credit scores if you're not careful.
The number of recent applications
For example, a relatively small percentage of your credit scores is determined by the number of new credit accounts you’ve opened recently. Multiple applications in quick succession may suggest to lenders that you're in financial distress and thus a risky bet, so in general a good rule of thumb is to wait six months between credit card applications.
That doesn't necessarily apply to everyone; those with high scores and great credit may not need to wait as long. But it's why churners usually apply for several new cards all in one day, then wait several months to apply for new ones.
“Multiple applications in quick succession may suggest to lenders that you're in financial distress and thus a risky bet.”
A larger percentage of your credit score hinges on your credit utilization ratio. That metric looks at how much available credit you have and how much of it you’re using, and the lower the ratio, the better. This can cut two ways: If you have multiple credit cards, you’re likely to have more overall credit capacity and thus a higher potential credit utilization ratio — assuming, of course, that you're paying off your bills in full every month and don’t carry large balances.
But if you're racking up debt across multiple cards just to score one-time sign-up bonuses, your scores will suffer until you pay off those balances.
Another way churning could hurt your credit is if you forget to make a payment because you’re juggling so many credit cards. On-time payments are the biggest factor in your credit scores.
If you’re spending on many cards to earn as many rewards as possible, the chance that you’ll forget to pay a bill by its due date increases. Setting up alerts and auto-payments can help, but even if you're very careful, it can be easy to get burned here.
Length of credit history
Finally, closing your credit cards can also ding you on two fronts: your credit utilization (noted above) and your average age of accounts, which is yet another credit score factor. Rather than closing a card you no longer use, it's typically better to simply stow it away in a sock drawer so that you retain both the credit line and history.
Of course, that calculus may change if a card you don't use is charging you an annual fee. But if so, instead of shuttering the account outright, you could attempt to downgrade your credit card to a no-annual-fee product and keep the same card number and, thus, the credit line and history. This is known as a "product change," and it's a strategy many churners employ.
“Closing your credit cards can ding you on two fronts: your credit utilization and your average age of accounts — both of which factor into your credit scores.”
How banks put up guardrails against churning
While credit card issuers love having new customers, they would rather form long banking relationships with cardholders rather than acquire fleeting users. Many issuers have put measures in place to pump the brakes on churners:
Chase: Though it’s officially unpublished, Chase has a rule called 5/24. If you’ve opened more than five personal cards in the past 24 months — from any issuer — you won't be able to open a new Chase credit card account.
American Express: AmEx offers a welcome bonus on most of its credit cards only once per person, once per lifetime. That means if you had a specific card previously, closed it and then applied for it again later, you would not be eligible for a welcome bonus.
Bank of America®: This bank operates under what’s called the 2/3/4 rule, which is also unpublished. You’ll only be approved for a maximum of two credit cards per rolling two months, three cards per rolling 12 months, and four cards per rolling 24 months. Many Bank of America® credit cards also prohibit you from acquiring a card and getting a bonus if you’ve received it in the past 24 months.
Citibank: Most Citi cards fall under a 48-month rule. That means if you apply for a card now and then cancel later, you won’t be eligible to reapply and get the bonus again until 48 months after your first application. Some cards fall under a 24-month waiting period, and some cards aren’t affected at all.
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:
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, churning may be a recipe for trouble.
You’re not organized: Keeping up with spending requirements, due dates and fee schedules is a lot of work. If you’re not organized, things can go south quickly.