Do you ever apply for credit cards just for the sign-up bonuses or rewards points they offer? This strategy of signing up for numerous cards to get those types of benefits is known among credit card enthusiasts as “credit card churning.” Many people take readily to credit card churning; devotees will even apply for and cancel the same type of credit card multiple times just to get the same sign-up bonuses repeatedly. However, while there are some benefits to credit card churning, there are several disadvantages as well. Additionally, making mistakes with this practice could lead to long-term financial harm. Here are some things to think about before you decide to try credit card churning.
Churning and Your Credit Rating
To practice credit card churning, you’ll have to open new and close old credit card accounts constantly. To qualify for those new credit cards, you’ll need an average to good credit score. You can download a free copy of your credit report every year, so make sure you do so and read it thoroughly. Your credit report will give you a clear picture of your current credit rating, so you’ll know right away whether churning is even in the cards for you. Many online banks and financial apps allow you to monitor your credit score in real time, too, so consider downloading one of those to maintain credit score awareness at all times.
You should also be cognizant of the potential impact churning can have on your credit rating. Constantly opening and closing credit card accounts can drag your credit rating down substantially. New credit inquiries account for about 10% of your overall FICO score. Failing to monitor churning’s impact could damage your credit and make it harder to make critical life purchases later on, such as buying a home or a car. Thus, before you start credit card churning, ensure you’re ready to monitor your credit rating closely.
Optimize Your Lifestyle
In some cases–and if you do it right–credit card churning can help you get the most out of your personal lifestyle. For instance, if you travel a lot for business or pleasure, rewards cards that rack up mileage points can help you save money on airfare and earn tremendous other travel benefits. You may also be able to cash in those rewards points to amplify your spending power. Many cards offer rewards for the purchase of items such as gas or groceries, so they can help your money go a long way. As an added benefit to this practice, you may be able to get those rewards without having to pay substantial interest or other fees if you’re rapidly turning in old cards and closing the accounts.
Manage Your Credit Cards Carefully While Churning
Churning will require you to rack up significant balances on your credit cards for the points, pay them off, and cancel them, and then sign up for new credit cards. You’ll have to repeat this process repeatedly to reap any real benefits from all this churning. Additionally, you’ll also need to be able to pay off those credit card balances regularly in order for credit card churning to work properly.
If you carry a balance that’s too high to pay off in a given month, your ability to close out the old cards and order new ones to earn more points will be severely limited. Moreover, attempting to churn could end up getting you deeply into debt, and make it difficult to pay your current bills or save for the future. If you have trouble managing debt, you should really think long and hard before you decide to start credit card churning.
Read the Terms and Conditions
Not all credit cards are equal, so make sure you know exactly how your bonuses or rewards points are going to work before you apply for a new card. Read the terms and conditions for your rewards points cards very carefully. Many of those rewards credit cards require that you spend a minimum amount of money within a certain period before you qualify for the sign-up bonuses. As an example of this, one credit card from a popular lending institution grants cardholders 40,000 bonus points upon account approval, but not until the cardholder has spent $3,000 within the first three months of card activation. The terms on some credit cards may be a bad fit for your current financial situation, so make sure you read the fine print before you select credit cards with which to churn.
Credit card churning can offer you some excellent financial benefits. However, if you do it wrong, churning can put you in debt and damage your credit. Thus, if you’re thinking about giving credit card churning a try, consider the points discussed here, and proceed carefully.