What is Credit Card Churning?

For some, earning rewards through churning is an attractive option. For others, frequent credit applications may mean lower credit scores and credit card debt. In many cases, though, the need for constant credit card payoff can lead to financial strain. 

Key Points:

• Credit card churning involves opening new credit cards to take advantage of limited-time bonuses and rewards.
• Credit card churning may cause your credit scores to drop and limit your credit card account options.
• Credit card churning may also lead to multiple credit card debts.

What is Credit Card Churning?

Credit card churning is the practice of opening credit cards to earn sign-up bonuses and promotional rewards. Once the rewards are earned, the cardholder may close the account, often before annual fees apply, and then moves on to the next card. Some churners hunt for credit card rewards and bonuses and open multiple accounts over time.

A successful churner can earn free flights, points or miles, vacations, hotel stays, and cash this way. Common targets include travel credit cards, business credit cards, student credit cards, and more.

Credit card issuers create promotional bonuses to attract new, long-term customers. Churning focuses on earning those introductory offers without maintaining the account long term. Because of this, many issuers have added restrictions or limits to discourage the practice.

Below, we’ll explain how credit card churning works, its potential benefits and risks, and how it may affect your credit score.

How Credit Card Churning Works

The theory behind card churning involves finding good promotional deals, signing up for them, redeeming them by fulfilling the minimum spending requirements, and quitting using the cards or even closing them.

In practice, credit card churning is an effort-intensive undertaking requiring outstanding research, constant monitoring, and some creativity:

1. Finding the best promotions and deals: The first step is to get a card with two or more good promotional deals. A good deal means an attractive reward/bonus in the currency of your preference (points, welcome bonuses, bank bonuses, frequent flyer miles, cash back options, etc.). Credit card rewards should also come with advantageous terms such as no requirement to keep the cards open after you secure the bonuses, promotional annual fees, etc.
2. Timing: Some churners find the best credit cards, compare credit card deals, and apply for several cards at once. Others space out their applications over a few months.
3. Meeting spending requirements: Churners then secure the rewards by fulfilling the spending requirements.
4. Canceling or not using the card: Finally, they cancel the card or stop using it before they incur an annual fee or credit card interest, and keep opening new credit accounts over and over.

Pros and Cons of Credit Card Churning

Pros of Churning

Credit card churning may seem attractive to some credit card holders because:

• It can be a way to earn more rewards than any single credit card would typically offer.
• Promotional terms can make it possible to earn rewards faster than with everyday spending alone.
• Some churners like the flexibility of canceling cards after earning the bonus, rather than keeping accounts with rewards that don’t fit their everyday spending.

Cons of Churning

Churning also has downsides, such as:

• Repeated credit card applications can result in multiple hard credit inquiries, which may temporarily lower your credit score.
• Applying frequently for credit may also increase your chances of being turned down.
• Opening and closing multiple credit cards over a short period can make it harder to keep track of payment due dates, spending requirements, and account balances. Missing a payment or carrying a balance could lead to interest charges and negatively affect your credit score. 
• Even when annual fees are waived at first, fees and interest charges can reduce the value of the rewards you earn.
• Some churners increase spending to meet reward requirements, which may add or create credit card debt.

The Impact of Churning on Your Credit Scores and Credit Card Debt

There are five factors that make up your credit score. According to Experian, your payment history accounts for 35% of your score, followed by the amount you owe at 30%, the length of your credit history at 15%, new credit at 10%, and the types of credit you have at 10%.

Credit card churning can negatively impact your credit score in several ways:

• It can affect your credit utilization ratio, which falls into the category of “Amounts Owed.” Churning can make your utilization ratio go down, but if you fail to make payments on time, it can also lead to debt.
• If you forget to pay a bill on time, churning can harm your payment history, which accounts for 35% of your credit score.
• Closing credit cards can affect your credit utilization and the average age of your accounts, which can influence the “New Credit” category of your credit score.
• Lenders may also view frequent credit card applications as a sign of financial distress.

Source: Experian

Struggling with Credit Card Debt?

Credit card churning can be a way to earn rewards, but the practice can get tricky. For example, credit card companies may make it harder to get approved for new accounts if you open too many too quickly. Additionally, if you’re not careful with expenses, the rewards may not be worth the hassle.

If you have tried credit card churning and find yourself struggling with credit card debt, we can help. Contact a ClearOne Advantage Certified Debt Specialist at 866-481-1597 to learn what your credit card relief options are and get a free savings estimate today!