Credit card churning is a high-risk, high-reward strategy of opening a new credit account to earn its welcome bonus and then closing the card to move on to the next.
Credit card issuers use welcome bonuses to attract new cardholders and reward them for spending a certain amount with their new card. They are typically a one-time bonus, but can offer a ton of value.
While credit card churning may sound like a no-brainer, the risks could lead to significant negative impacts on your financial life. It has the potential to be rewarding, but it can also lead to increased credit card debt, overspending and a damaged credit score.
How applying for credit cards impacts your credit score
Most credit cards require a hard credit check when applying. This will temporarily lower your credit score and leave an inquiry on your report for up to two years. While one inquiry isn’t a huge deal, lenders don’t like to see many credit card applications in short succession.
That said, applying for a new credit card -- if you’re approved -- can also improve your credit score by decreasing your credit utilization. This percentage describes how much of your total available credit is in use, and it plays a large role in determining your credit score. Keep your credit use below 30% of your total credit limit for the best results.
Credit card churning can affect your credit in a number of negative ways. Opening and closing new credit card accounts will lower your credit score and make you look like a high-risk borrower.
The age of your credit accounts also contributes to healthy credit scores, so if you don’t have any credit accounts that aren’t more than a few months old, your credit score won’t benefit.
To have a healthy credit score, you want to have credit accounts that are at least six years old and to keep your credit utilization under 30%. If you’re putting a lot of spending on all of your credit cards to reach their bonuses, you might not be able to stay within that range, and your credit score will suffer for it.
Opening and closing credit cards repeatedly is also seen as risky behavior from a lender perspective, meaning you’ll be less likely to be approved for credit products. Most of the time you’ll want to space out credit card applications by at least six months.
Bank rules discouraging churning
Credit card issuers and banks view credit card churning as gaming the system, and many of them have taken steps to discourage the strategy. Here are a few of the restrictions issuers may have in place.
- Chase’s 5/24 rule: Chase likely won’t approve you for any additional cards if you’ve applied for five credit cards -- no matter the issuer -- within 24 months.
- American Express’ “once per lifetime” rule: Cardholders are only able to earn a welcome offer from any given Amex card once in their lifetime. So, you can’t earn a welcome offer, close the card, then apply for the card again to earn another welcome offer.
- Citi’s 24/48-month rule: If you’ve closed and then opened a new Citi card, you won’t be able to earn a welcome bonus for 24 months, or 48 months for a co-branded card. Basically, you need to wait either 24 months or 48 months after closing a credit card to open another one before you can earn another welcome bonus.
- Bank of America’s 2/3/4 rule: You can only apply for two Bank of America credit cards in a 30-day period, three cards in 12 months or four cards in 24 months.
- Capital One two-card rule: You’re only able to have two Capital One consumer credit cards at any one time.
There’s also the risk of your issuer thinking you are gaming the system -- either by checking your credit reports or by seeing irresponsible behavior. If it does, you run the risk of having your account closed.
Reasons to avoid churning
While there is a good deal of value to be earned by credit card churning, as welcome bonuses can be very lucrative, the risks outweigh the rewards. Credit cards are designed to provide long-term value, so using them for short-term gain is ill advised.
Churning can make it easier to fall into credit card debt, as you’ll be required to put potentially thousands of dollars on a new credit card in a relatively short time frame to reach the bonus. That can lead to overspending on unnecessary purchases as you work toward qualifying for the bonus. And if you can’t pay off the balance in time, interest charges and annual fees can wipe out any of the value you stand to gain from the welcome bonus.
You could just opt for welcome bonuses on no-annual fee cards, but credit cards with no annual fees tend to have much smaller welcome bonuses than credit cards with an annual fee, making churning less lucrative.
Constantly opening (and closing) new credit cards can make you appear as a risky borrower to lenders, making it harder to get approved for any credit products.
Your credit score determines what kind of terms you get for house mortgages, car loans, personal lines of credit and more. Unless you’re able to, as the credit card churning Reddit says, “churn, baby, churn!” you’re only going to make things harder for yourself in the long run.
No, credit card churning is not illegal. However, if your credit card issuer suspects you of gaming the system, it may take punitive steps.
While ill advised, a churning strategy would be to obtain a welcome bonus, pay off the full statement balance to avoid any interest charges, redeem the bonus, then either close the card or “sock drawer” it and move on to the next one. However, it’s a risky strategy that is viewed as gaming the system by credit card issuers. It can have serious ramifications on your finances and your credit score.
You’ll need to decide that for yourself. While churning can be rewarding, it also has numerous risks. The long-term impacts it could have on your credit could leave you struggling financially for years. Credit card debt is never something you want to get into, and credit card churning is a fast track toward that.
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