When you first get started in the world of travel rewards, you may find all sorts of terms that you don’t understand. One such term that comes up again and again is credit card churning.
Credit card churning isn’t tossing a bunch of credit cards into a big vat and stirring them around. That wouldn’t make any sense, even though that is what it sounds like.
Churning a credit card refers to a strategy where someone applies for credit cards purely to earn the signup bonus or other benefits, with no intention of keeping the card long-term. Typically, the card is closed after the bonus is earned and before the next annual fee is charged. Done strategically, credit card churning can earn huge rewards, but it also carries risks if not approached carefully.
How Credit Card Churning Works
The basic concept behind credit card churning is to open a card, earn the bonus, close the card before you have to pay a fee, and repeat the process with a new card. There are two main approaches to churning:
Churning the Same Card
With this method, you apply for the same credit card over and over. For example, you might open the Chase Sapphire Preferred, earn the 60,000 point signup bonus by spending $4,000 in 3 months, close it after a year, wait a few months, and repeat the process. This takes advantage of cards that offer a bonus regularly.
Churning Multiple Cards
The other approach is to apply for several different cards at once, earn the bonuses, close the cards, and repeat the process months later with a new set of cards. This method allows you to earn bonuses from many cards rather quickly. An extreme version of this is called an “app-o-rama” where someone applies for 3+ cards on the same day.
Why People Churn Credit Cards
The main reason people churn credit cards is to earn lucrative signup bonuses quickly. For example:
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The Chase Sapphire Preferred offers 60,000 bonus points after spending $4,000 in 3 months. 60,000 Chase points are worth around $750 in travel.
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The Chase Ink Business Preferred offers 100,000 bonus points after spending $15,000 in 3 months. 100,000 Chase points are worth around $1,250.
Earning bonuses like these quickly allows churners to rack up hundreds of thousands of points or miles. Those rewards can then be used for free travel or transferred to airline and hotel partners. Churning works best for people who spend a lot on credit cards and can easily meet the minimum spend requirements.
Besides signup bonuses, some people churn cards to take advantage of other benefits like airline lounge access, annual travel credits, and anniversary points. Once the benefit is used up they close the card and move on to the next one.
Risks and Downsides of Churning
While churning can earn huge rewards, there are some risks and downsides to be aware of
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Credit inquiries – Each credit card application results in a hard inquiry, which causes a small temporary drop in your credit score. Too many inquiries can be seen as risky.
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Account closure – Canceling cards quickly can also hurt your credit score by decreasing your average account age and total available credit.
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Denials – Banks don’t like churners, so you may be denied if you apply for too many cards too quickly. Issuers like Chase have limits on how many cards or bonuses you can earn.
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Clawbacks – If you don’t follow the cardholder agreement properly, issuers can clawback (take back) your bonus points and close your account.
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Debt – It’s easy to overspend when chasing bonuses. Revolving debt negates any benefit earned from churning.
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Time investment – Churning properly takes research and planning. It can be time-consuming to stay on top of the best offers.
Tips for Churning Credit Cards Successfully
If you want to maximize rewards through strategic credit card applications, keep these tips in mind:
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Check for targeted offers which aren’t subject to some issuer rules before applying.
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Space out applications by 3-6 months to avoid denials and minimize credit impact.
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Meet bonus spending with your normal budget, not overspending. Pay off balances each month.
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Use the card for a while after earning the bonus to get the most value before cancelling.
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Cancel at the right time before annual fees hit but after you earn any cardmember-year benefits.
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Keep old accounts open rather than cancelling to maintain your average account age.
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Have a cool-off period from churning after you’ve earned multiple bonuses to let your credit score recover.
The Bottom Line
When done carefully and strategically, credit card churning can be a lucrative way to maximize your signup bonuses and credit card rewards. However, it requires planning and attention to detail to avoid potential downsides. As with any complex credit card strategy, it’s smart to start slow and small as you learn the ropes.
How To Protect Your Credit
Each time you apply for a credit card it affects your credit score in multiple ways. First, adding a new hard inquiry to your credit report can cause your credit score to drop a few points. Second, if you are approved, the new credit that you are issued will increase your total available credit, therefore changing your credit utilization and increasing your score. Finally, the new card account you are approved for will decrease your average age of accounts, which will also impact your score.
Because of these factors, your credit score is likely to drop slightly with each card you apply for. It is important to plan accordingly, especially if you are hoping to get a home mortgage, mortgage refinance or auto loan in the near future.
Frequently Asked Questions (FAQs)
No, credit card churning is not illegal. However, it may be against the terms and conditions of some credit cards, which means the card issuer reserves the right to close your account or confiscate your rewards.
Is Credit Card Churning a Smart Financial Strategy?
FAQ
Does churning hurt your credit score?
Credit card churning may make it harder to get credit in the future. As previously mentioned, churning credit cards can seriously hurt your credit, which may make it harder for lenders to approve you for new credit in the future, or for you to qualify for the best credit card options available.
Is it worth credit card churning?
Credit card churning can be risky—although you may earn an extra welcome bonus, you are also putting your credit on the line. Your existing accounts could be closed, leaving you without access to credit. Additionally, you could forfeit your accumulated points and be denied from opening future credit cards.
What is the 5 24 rule for credit card churning?
The 5/24 rule states that if you have been approved for five or more credit cards in the last 24 months, you will automatically be denied for any Chase credit card products. This is to prevent consumers from applying to credit cards solely for the welcome bonus and closing the account before the annual fee comes due.
What are the rules for Chase credit card churning?
In the points and miles world, a mention of the infamous 5/24 rule is sure to follow whenever a Chase card comes up. Essentially, this refers to the unofficial rule that Chase won’t approve a credit card application for someone who has opened five or more new credit cards from any issuer in the past 24 months.