Credit card churning has become a popular practice among credit card enthusiasts. It allows you to maximise credit card rewards and bonuses by repeatedly opening and closing credit card accounts. Credit card churning involves signing up for a credit card that offers a generous sign-up bonus, meeting the minimum spend requirements, and then cancelling the card before annual fees become applicable.
What does credit card churning mean?
Credit card churning is the process of opening and closing credit card accounts repeatedly to earn welcome benefits, rewards, and sign-up bonuses.
How does credit card churning work?
Credit card churning involves opening new credit card accounts frequently to earn sign-up bonuses and rewards. The process goes something like this:
- Find a credit card with a generous sign-up bonus.
- Apply and get approved for the card.
- Meet the minimum spend requirement to earn the bonus rewards.
- Pay off the balance in full.
- Cancel the account before the annual fees kick in.
- Repeat the process with a different credit card.
How do banks limit credit card churning?
Banks, not oblivious to the savvy tactics of those practising credit card churning, employ measures to curb these activities. These limitations include waiting periods between card applications, restrictions on receiving sign-up bonuses for the same card multiple times, and stringent eligibility criteria for premium cards. The goal is to strike a balance between rewarding loyal customers and deterring those who merely seek short-term gains.
Disadvantages of credit card churning
Here’s how credit card churning can prove to be disadvantageous:
- Credit score impact: Rapidly opening and closing credit cards can lead to an increased number of hard inquiries on your credit report, potentially lowering your credit score temporarily.
- Annual fees: Some cards with attractive rewards often come with high annual fees. So, you need to assess whether the benefits outweigh these fees, especially if they are not utilising the card's features effectively.
- Managing multiple cards: Juggling numerous credit cards requires a high level of organisation and responsibility to avoid missed payments, accumulate debts, or lose track of rewards.
How does credit card churning affect your credit score?
Credit card churning impacts your credit score, here is how:
- Hard inquiries: Each new credit card application results in a hard inquiry, which may have a small, temporary impact on your credit score.
- Average age of accounts: Frequent card churning can lower the average age of your credit accounts, potentially impacting your credit score.
- Credit utilisation: While opening new credit cards increases your available credit, maintaining similar spending patterns can lower your credit utilisation ratio, positively affecting your credit score.
Tips to maximise rewards without credit card churning
Here is how you can make the most of the rewards without credit card churning.
- Strategic card selection: Choose credit cards that align with your spending habits and offer consistent rewards over time.
- Leverage everyday spending: Use credit cards for daily expenses to accumulate rewards naturally without the need for constant card cycling.
- Utilise card features: Make the most of the features and benefits your credit cards offer, such as cashback, travel rewards, or purchase protection.
Credit card churning can be a lucrative technique for earning rewards and bonuses, but it comes with significant drawbacks, such as hurting your credit score and incurring high annual fees. It is essential to consider the risks involved before engaging in this practice. While there are still other ways to maximise your rewards without credit card churning, it is essential always to use your credit card responsibly. Ultimately, credit cards are a useful tool in managing your finances and improving your credit score if used correctly.
