Credit card churning is the process of applying for credit cards several times a year, spending on them to earn a big introductory bonus, and then closing them out before the annual fee comes due.
There is a small but vocal community of people who do this as a hobby, and earn thousands of dollars in rewards each year in the process. Credit cards regularly offer rewards of $200 – $500 or more for signing up and people who churn do it for this simple reason:
You can earn much more than the standard one point per dollar (a 1% cash back rate) a single card offers. Instead, if you put your spending toward meeting bonus offers you can earn much more than that.
For example, you might find an offer that gives you $400 in reward points after you spend $3,000 in 3 months on a new card. So for the first $3,000 you spend on your card, you’ll earn over 13% in rewards back ($400 / $3,000 in spending). After that, you can apply for another card with an offer and earn something similar by putting your everyday spending on it for the next few months. By doing this throughout the year with different cards you can earn much more than the typical 1% cash reward value most single cards give.
Is it right for you?
1. You must have excellent credit. You can earn hundreds of thousands of miles in rewards, but the best offers are only for those with the best credit. For example, this year there is a 100,000 mile American AAdvantage bonus offer, but it’s only available with its high end credit card, the one that usually requires excellent credit. A credit score of 720 or higher on a scale of 850 is considered excellent, and you should have at least a few years of good credit history.
2. You shouldn’t be applying for a mortgage. Applying for a credit card will lower your score modestly – about 5 points for each application. This effect lasts at most a year on your score, but often lessens as more cards open means you end up having more credit available to your name, a good thing for your score. But if you are about to get a mortgage or other big loan and are borderline on being qualified, they may frown upon opening too many card accounts just prior to applying for the loan.
3. Pay the cards in full each month. Credit card companies make good money on your forgetfulness. If you forget to pay off a card in full, you’ll be hit with interest charges on your balance for the month, and those charges lower the value you’re getting from sign up offers. It’s not worth it to go after rewards if you can’t pay your rewards cards in full each month.
4. Keep track of when you applied. Most cards with a good reward bonus offer carry an annual fee after the first year. There’s a good chance you may want to keep some of the cards you try out, but some you won’t want to keep and cancel before the annual fee is due. If you end up applying for several cards, it’s a good idea to set a reminder on your smart phone calendar for a year from now, when the annual fee will come due.
Finally, don’t be greedy about it. Banks want you to switch to try out their products, and they are willing to pay nice offers to do it. But if you abuse a single bank by applying for say 5 of its cards a year and cancelling them all right away, you’re sending a message you’re not a good customer. Better to apply for a few cards spread out over different banks throughout the year, and you’ll still earn hundreds, even thousands of dollars in rewards from your regular spending.