What is churning?
What is churning?
Credit card gaming, also known as "churning", is the practice of obtaining a number of rewards credit cards for the purpose of accessing their individual signup bonuses (e.g., "100K points if you spend at least $4,000 in the first 3 months"), high introductory rewards earn rates (e.g., "10 miles per dollar spent for the first 6 months"), and/or complimentary items (e.g., "2 free flights when you get approved for the card", "complimentary Gold Elite Status for the first year"), but then canceling the card once you earn the rewards you were seeking.
The good: Some of the more experienced churners have been known to earn hundreds of thousands of points/miles and thousands of dollars in cash each year through these credit card signup bonuses. On the surface, considering all of this "free money" from signup bonuses, as well as the various other credit card perks such as luxury hotel stays, travel upgrades, and free or massively reduced airfare and trips, it's easy to see why some people are such avid churners.
The bad: But, as with all things, there are some downsides to consider. Credit card issuers are in business to make money. To this end, they are dedicated to weeding out bad risks and identifying card users who will cost them money. Therefore, the credit card gaming strategy is a red light for card issuers. They don't want such customers on their books, and if your spending habits indicate that this is how you tend to use credit, your FICO score and credit eligibility will drop.
Before deciding whether to dive into the world of credit card churning, listed below are some tips and other things to consider.
Maintain an Excellent credit rating
This cannot be overstated! Firstly, this is a requirement in order to qualify for the cards you need for churning. More importantly, it's foolhardy to jeopardize your credit for a vacation or cash that you'll run through quickly and then be left with no means to purchase important big-ticket items like a house or car.
Keep your credit utilization ratio low
Credit utilization ratio (a.k.a. "CUR") is a percentage that compares the amount you've spent with your credit cards to the amount of credit you still have available through the accounts. You need to aim for a low CUR. Anything higher than 30% is going to have a detrimental effect on your FICO score, and to maintain a high FICO score, your goal should be to keep your CUR around 10%. Churning can increase your CUR. When you cancel a number of cards all at once, you're left with a high spending rate and no available credit, escalating your CUR to a dangerous level. A best practice for churners is to just pay off the balance on the card and stop using it.
Understand the impact of opening multiple credit accounts in a short amount of time
Another red light to credit card issuers is an applicant who has recently opened several credit accounts and immediately began using them regularly. 10% of your FICO score is determined specifically by this type of activity. An issuer may decline your application if they see evidence of this. Skilled churners will often apply for all of their cards on the same day in an attempt to circumvent the hit on their credit. This is sometimes referred to as an "app-o-rama."
Don't carry a balance
The biggest portion of your credit score (35%) is determined by how you pay your bills. If your credit history shows that you've made credit card payments and other bill payments late, this will have a negative impact on your credit score, thereby threatening your ability to attain credit in the short-term as well as in the long-term. If you aren't prepared to spend the requisite amount of time organizing and keeping up with fee schedules, payment dates, and other time-sensitive requirements to reap the rewards, then credit card gaming might not be a wise journey to embark on.
If you're going for high rewards rates, make sure they're relevant for the way you spend
Don't jump at a card simply because it promises you high spend-based rewards earn rates (high cash back, points, or miles earn rates for spending in certain categories). These high earn rates usually come with some tough restrictions, or they'll only apply to overly-specific spend categories. If you're buying something you neither want nor need simply for the sake of that higher earn rate, that would clearly make for an unprofitable strategy.
Pay attention to the annual fees
Annual fees are almost always a no-no. Some issuers will try to rope you in with an inflated rewards earn rate if you agree to an annual fee card. Look closely at what purchases earn the rewards and evaluate your typical spend levels. Compare the resulting rewards payout to the cost of the annual fee to determine if this offer would actually be profitable for you.
Read the full offer details
Read the entire offer, including the terms and conditions. Look for the rules and restrictions regarding redemptions, forfeitures, spending requirements, and expiration dates.
Don't churn if you'll need a loan in the near future
If you're planning a large purchase such as a home, the impact that churning may have on your credit score can result in a failure to obtain credit (e.g., a mortgage) for that upcoming purchase. Lenders are looking for a stable credit history, and they consider a large number of opened and closed credit card accounts to be a bright red flag.
Credit card gaming may look like easy money. But as illustrated by some of the tips above, it can quickly go wrong, resulting in a lasting negative impact on your credit score and credit history for a significant amount of time. If you're determined to try your hand at churning, it's best to start small. Pick a particular reward, like a trip, and then carefully select one or two cards to work towards it.
Read more than just this article
Credit card churning best practices and risks are constantly evolving, and there are many nuances and watch-outs to consider. For those reasons, it would be wise to read through other, more in-depth articles about churning, as well as some of the forums/online communities that are dedicated to churning. For example, the r/churning Reddit community contains a ton of useful content and links related to churning. Some particular things worth checking out would be the wiki, the glossary, and the churning flowchart (although there might be a more-updated version of it by the time you're reading this article).