Credit cards offer a world of benefits for owners. The most well known is the ability to build credit. This allows you to afford and finance large purchases, and provides an extensive credit score boost. However, many credit card companies these days will offer benefits for new account holders who complete certain tasks and spending milestones via their cards. It is here that the concept of credit card churning, and the extensive churning pros and cons, come into play.
Credit Card Churning: The Basics
The idea behind credit card churning is simple. You get the cake (a new card, spending limit increase, potential credit score boost, etc), and eat it too (points or miles towards free rewards and travel). Basically, you open an account with a credit card company where the card offers a sign-up bonus. Then, you go spend the minimum amount to meet the parameters of the bonus. Finally, you choose to either maintain the account, or close it and move on to the next card.
Some credit providers even allow you to sign up for the same card multiple times. More experienced credit card churners will sign up for multiple cards simultaneously to ensure the benefit earning potential is accelerated.
Let’s say a company has an offer to give you $200 if you spend $750 within the first few months after you sign up. To become a credit card churner you would open an account with the company and spend the $750 so you can earn the $200 bonus. After you earn the bonus you will cancel the credit card. If you had a good experience with this company you may elect to open another account after a few months have passed so you can earn another reward. It becomes a cycle that devoted credit card churners find themselves in.
The Pros of Credit Card Churning
The obvious benefit of credit card churning is whatever the credit card company is offering. If it is a certain amount of cash back after you spend a set amount then the benefit is the money you earn back or “save.” Obviously spending more money than you are earning can be a bit counterintuitive but that’s something you will have to measure before you opt in to credit card churning. A way to measure if it is beneficial is if you are already going to spend the money then it could be in your favor to use the credit card because you will be saving money on something you were already going to purchase. Let’s say the company offers bonus points or miles to be used if you spend a certain amount of money within a set time limit. You can basically spend money on your necessities over the course of a few months and pay for your trip with the bonus points that you earn while doing so. So it is in your favor to spend the money on the credit card because you can basically get a free trip out of it.
If you become experienced in credit card churning you can definitely organize your spending habits in a way that fully benefits you. You can maximize the rewards offered by the company while making purchases you were already going to do anyway. Plus, some credit cards offer immediate savings every time you swipe your card. You can save on these purchases while earning the extra bonus offer at the same time.
The Cons of Credit Card Churning
Unfortunately, credit card churning can negatively impact your credit score. This is hands down the biggest con to credit card churning and it should not be taken lightly when you are considering if you should start or not. When you apply for a new credit card your credit history experiences a hard inquiry. Each time your credit is ran your credit score decreases by up to 10 points. Anyone can apply for a credit card but not everyone is approved for an account. The hard inquiry is put in place to make see if you can handle another credit card. A lower score also impacts your approval so it could end up being a double negative for you. You need a good credit score to receive special financing for large purchases meant to be paid off over several years of payments. If you want to buy a car and need to finance it, you may not be approved for the lower interest rates because your credit score is so low which will cause you to pay more in the long run.
Credit card churning is not an activity made for everyone. You have to be well versed with your financials and balancing what is coming in with what is going out of your accounts. The last thing you want to do is open a bunch of credit card accounts, spend without care, and find yourself in a large hole of debt. If you are going to attempt to become a credit card churner you need to be mentally prepared all outcomes. If you’re not careful you may end up spending more than you originally planned. Debt is extremely easy to get into and incredibly difficult to get out of. People who aren’t good with money can have an even more difficult time when they are given an “endless” limit. When money comes out of your debit account you see firsthand how much money you are spending. When money comes out of your credit account you may think it’s not really your money and you can just spend however much you please.
A lot of credit card churners eventually get so involved in earning the benefits and make churning credit cards their hobby. The more involved you get and the more accounts you open up translates to more time that you have to spend participating in credit card churning. This can become overwhelming, especially if you have found yourself in any kind of financial trouble. It adds more pressure on you to keep track of everything.
Our Advice on Credit Card Churning
We strongly believe that credit card churning should be approached on an individual’s personal situation. This case by case approach will be better for you in the long run because you may not be the most suited for credit card churning or you may be one of the few that can make it work successfully. We suggest you look at the following criteria to determine if credit card churning is for you.
- What does your current credit score look like? If you already have a low credit score chances are you won’t get approved for the credit card you want to apply for so it isn’t worth it for you to do so. If you have a higher or more reasonable credit score then you can definitely consider credit card churning but you should take note that it will not increase your score.
- Do you have a positive relationship with money? This may seem like a silly question but it is actually very important because if you aren’t good with money before you start credit card churning, chances are you will only get worse. Credit card churning can cause you to spend more money than you have because more money has “suddenly become available.” You need to remember that you are still spending your money and a credit card doesn’t give you additional funds to use. You still have to pay off each credit card you open up so if you can’t afford it then you shouldn’t do it.
- Are the benefits worth it? The most obvious benefit to credit card churning are the bonuses the companies are offering to you. We advise that you weigh the benefits of the bonus – is it even a bonus at all? Cash back is great but only if you are spending money that you were going to spend in the first place. If you can earn some extra cash by paying off your bills or buying your groceries then we say go for it!
- Can you stop after the benefits are earned? The whole idea behind credit card churning is that you will stop using the credit card after you have earned the bonus. Will you be able to stop using the credit card or is having the account going to negatively influence you to spend more money? If you have a game plan to spend only the amount of money to earn the reward and it proves to be worth it, then participating in credit card churning could prove to be beneficial to you. If not, you may want to consider other options.
At the end of the day, credit card churning is supposed to be an enjoyable experience for you to maximize the rewards of the credit card company offers. If you feel like credit card churning is for you then you will need to keep everything organized and be sure to pay off your balances in full each month. Credit card churning can be very beneficial if done correctly but can also have negative impacts if you aren’t fully prepared for it.