What is credit card churning?

Credit card churning has become a popular strategy among travel hackers who want to quickly earn a large quantity of reward points and miles. However, this strategy does come with several drawbacks that potential churners should be aware of. Many credit card issuers have implemented rules and restrictions to discourage credit card churning. In this article, we will explain how credit card churning works, discuss the pros and cons, and provide a reasonable strategy for earning credit card points and miles.

Credit card churning involves the process of opening new credit cards with the sole purpose of receiving a welcome offer. Once the welcome offer has been received, many churners choose to close the card before the second year’s annual fee is applied, and then repeat the process with the same card or other cards. The goal is to accumulate as many points and miles as possible through these welcome offers.

To illustrate how credit card churning works, let’s consider an example. Suppose you apply for Card 1, get approved, and meet the minimum spending requirement to earn the bonus points. After receiving the bonus, you would close the account before the second year’s annual fee is applied. You could then repeat the same process with Card 2, signing up, earning more points from its welcome offer, and closing the card before the annual fee posts in the second year.

There are several benefits to credit card churning. One of the main advantages is the ability to earn points and miles quickly through credit card welcome offers. These offers often provide enough rewards for an international first-class plane ticket or free hotel nights at luxury properties. Additionally, most rewards credit cards offer additional benefits such as monthly or annual credits towards food, ride-hailing services, or streaming services. Complimentary airport lounge access is another sought-after perk.

Credit card churning can also have a positive impact on your credit score. Having multiple credit cards open increases your overall credit limit, which can lower your credit utilization ratio. This ratio is an important factor in determining your credit score. Furthermore, earning points and miles on different cards allows you to diversify your rewards currencies, providing flexibility in redeeming them for travel.

Despite these benefits, credit card churning does have some significant drawbacks. One major disadvantage is the potential negative impact on your credit score. Frequent applications for new credit cards result in hard credit inquiries, which can cause your credit score to drop. Additionally, closing credit cards can decrease your credit utilization ratio and the age of your credit accounts, both of which are factors in determining your credit score.

Another drawback of credit card churning is that it often encourages high spending. Most credit card welcome offers come with minimum spending requirements, and unless you have planned a large purchase, you may find yourself spending unnecessarily to qualify for the bonus points and miles. This can have a negative impact on your finances.

Credit card churning is also a time-consuming process. It requires you to keep track of multiple credit card accounts, make payments on time, and figure out the appropriate time to apply for your next card. While there are tools available to help you manage your cards and rewards points, credit card churning still requires a significant time commitment.

It’s important to note that many credit card issuers have implemented restrictions to prevent credit card churning. For example, Chase has a 5/24 rule, which states that in order to qualify for certain cards, you cannot have opened more than five cards across all banks in a 24-month period. American Express limits you to five personal or business credit cards at a time, and Citi has an 8/65 rule, which only allows you to apply for one card every eight days and no more than two cards every 65 days. These rules make it more challenging to engage in credit card churning, and some issuers may even take back bonus points earned or refuse to approve you for future cards if they suspect churning activity.

To approach earning points and miles in a more strategic way, it is recommended to target a reward currency that aligns with your travel goals and preferences. It is also advisable to start with cards that have application limits, such as the Chase ecosystem with its 5/24 rule. Once you have built up a collection of Chase cards, you can then move on to other issuers like American Express, Citi, or Capital One. It is important to choose cards that you plan to keep for the long term to avoid negative impacts on your credit score, and to justify the annual fee associated with the card.

In conclusion, credit card churning can be a reasonable strategy for earning large quantities of points and miles, but it is important to carefully consider the pros and cons before engaging in this practice. While credit card churning allows you to accumulate rewards quickly, it can negatively affect your credit score, encourage high spending, and be time-consuming. It is essential to understand and work around card issuer restrictions, and to adopt a strategic approach to earning points and miles that aligns with your travel goals.

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