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Credit card churning
23 May 2019

What is Credit Card Churning and How Does It Affect Your Credit?

Americans today have an average balance of over $6,000 on their credit cards — the highest its ever been.

It seems like Americans are reaching for plastic over cash more and more these days. Maybe it’s convenience, maybe it’s because we’re short on funds, or maybe it’s because of the benefits associated with using credit cards over cash.

These benefits can be so great that some people actually open multiple credit accounts in order to get the most out of all the available benefits. Credit card churning is a newer concept, but it can be pretty enticing. That doesn’t mean everyone should take part, however.

Want to learn more about it? Read on to learn all about credit card churning.

What Is Credit Card Churning?

Credit card churning is a method used by lots of consumers in order to take advantage of introductory credit offers by credit card issuers. Consumers open accounts with the best credit cards, get the rewards, and then close them once the introductory period is over.

How does this work in real life? Let’s say you’re interested in opening a rewards credit card. Your natural inclination will be to open the credit card with the best benefits.

These benefits are often front-loaded. Let’s say you open a credit card that gives you $500 cash back when you spend $4,000 in the first three months of opening your account. You open the account, spend $4,000, get the $500 reward, and then immediately close the account.

You then move on to another credit card that has introductory offers and repeat the cycle. Over time, you’ll likely end up re-opening accounts that you previously closed in order to keep up the cycle of rewards.

Does It Hurt Your Credit?

In theory, credit card churning is a method to get rewards from credit card companies. But it doesn’t come without risk.

The opening and closing of accounts has a big impact on your credit score. In fact, the age of your credit accounts amounts to approximately 15 percent of your overall credit score.

That means that if you’re opening accounts and then closing them after the introductory period, then the average age of your credit will be approximately 90 days. Ideally, you want older credit rather than newer because it demonstrates stability.

Another consideration is the impact multiple inquiries have on your credit score. Each inquiry stays on your credit for two years and impacts your score for one year. If you’re not 100 percent certain that you’ll be approved for the credit card for which you’re applying, then it may not be the best idea to start credit card churning.

Because of these and other potential negative impacts, you want to make sure that you are on the right track if you’re going to give credit card churning a go.

How Can I Do It Right?

Credit card churning is not for the inexperienced (or faint of heart). If you want to do it right, then you need to have a clear action plan in mind to avoid massive impacts on your credit.

Always Pay in Full

The best thing you can do when credit card churning is to pay off the balance on the card in full every single month. This means using your credit card as if it’s cash and not an additional source of funding for things like designer handbags or expensive vacations. Put all your bills on the targeted credit card and then pay it off.

One of the great perks about opening a new card is that many companies offer 0 percent introductory APR for a particular period of time. That means you won’t be paying interest on your purchases so long as they’re paid off within the introductory APR timeframe. Balances carried beyond that time period will end up costing you more.

Avoid Annual Fees

Many rewards credit cards come with hefty annual fees — some reach nearly $500 per year. Usually, those annual fees are offset by the rewards you earn, but if you don’t plan on keeping the card long enough to offset the fee, then you might consider moving on to a different card.

Make On-Time Payments

This may go without saying, but making on-time payments is one of the most important things you can do when credit card churning. Timely payments have one of the biggest impacts on your overall credit score, so you want to make sure that you’re staying on top of your due dates if you hope to open new credit card accounts in the immediate future.

Don’t Take on More Than You Can Handle

Opening up new credit card accounts and reaping the rewards is a thrill. It can even be addicting. It’s important to have a good amount of self-restraint when credit card churning so you don’t get carried away.

Before opening a new credit card account, make sure that you can afford to spend the required amount in the prescribed amount of time without breaking the bank or having to spend outside your usual expenses. If you can’t realistically afford to do it, then hold off until you can.

Avoid It If You’ll Need a Big Loan Soon

Think you’ll need a big personal loan soon? Maybe you’re looking to buy a house or start a new business. One of the last things you want on your credit in those situations is multiple inquiries and lots of new credit accounts.

Even if you’re paying off your credit cards on time each month, multiple inquiries on your credit is a great way to get denied for that loan you really need. If this is coming up in the next couple years, you might give credit card churning a rest until you’ve successfully secured the loan you need.

Are You a Credit Card Pro?

Credit card churning is a great way to take advantage of the insane amount of benefits offered by credit card companies. When done right, you’ll be raking in a ton of rewards. Just be careful not to overextend yourself or push your credit too far.

Want to learn more about smart credit moves? You’re in the right place! Check out the rest of our blog for information about everything from the best travel rewards credit cards to personal loans. Here are some other articles you might find helpful:

Credit cards 101 – the pros and cons of balance transfers
What are the most valuable attributes of the top credit cards?
Best secured credit cards
7 ways credit card verification can help you stay safe online