Credit Card Churning: A Cautionary Tale

In the quest to maximize credit card rewards, credit card churning is a strategy that is used to rack up sign-up bonuses across multiple credit cards. On the surface, this approach seems like a good idea - it’s a gateway to free travel, cash back, and other perks without necessarily spending extra money. However, doing it without damaging your credit and relationship with banks is tricky. We’ll help you decide if it’s worth the risk.

What is credit card churning?

Credit card churning is the process of signing up for credit cards to earn signup bonuses and then discontinuing using them, or even closing the accounts altogether, once the rewards have been earned and before any significant fees are incurred. Churners typically target cards offering high-value rewards, such as large quantities of airline miles, hotel points, or cash back, often within a short period after meeting a minimum spending requirement.

The rewards of churning

The allure of credit card churning is undeniable for a lot of people. Churners can enjoy a variety of benefits, including:

• Free or Heavily Discounted Travel: Airline miles and hotel points can cover the cost of flights and accommodations, making travel more affordable that can otherwise be out of reach.
• Cash Back and Gift Cards: Some cards offer cash back or gift cards as a sign-up bonus, providing direct financial benefits that are - quite literally - easy to cash out.
• Access to Exclusive Perks: Premium credit cards often come with additional benefits, such as airport lounge access, travel insurance, and more.

If you decide to do it

Remember, credit card churning is a risk. If you’ve decided to do it, consider the following:

• Understand the Terms and Conditions: Pay close attention to the requirements for earning bonuses, as well as any annual fees or other costs associated with the card.
• Plan Your Spending: Ensure you can meet minimum spending requirements without overspending or going into debt.
• Pay Balances in Full: Avoid interest charges and potential debt by paying off your balances in full each month.
• Monitor Your Credit Score: Applying for new credit makes up 10% of your FICO score. If you’re actively applying for new credit cards over and over again, that’s going to hurt your score. Regularly check your score and space out applications to minimize the potential hit your credit could take.
• Be Organized: Keep track of application dates, minimum spending requirements, and bonus deadlines to make sure you don't miss out on rewards or incur unnecessary fees.

Primary risks and considerations

While the practice of credit card churning can be rewarding, be mindful of the potential consequences: 

• Negatively impacting your relationship with banks: Many issuers view churning as “gaming the system,” a behavior that violates the terms of service for most financial institutions. In response to churning, most major card companies have implemented policies that restrict the frequency and quantity of card approvals. These measures can significantly hinder one's ability to collect multiple introductory bonuses from new cards. Moreover, issuers might restrict your chances of obtaining new credit cards going forward, hindering the ability to have awesome cards in the future.
• Impact on Credit Score: Each credit card application can temporarily lower your credit score. A high number of applications will have a longer-term impact. Also, do not credit card churn if you are going to take out a home loan sometime soon - mortgage lenders flag lots of opened and closed accounts on your credit history.
• Financial Risks: Failing to pay off balances in full can lead to high-interest charges and debt. No rewards are worth that trade-off.
• Complexity and Time Investment: Managing multiple accounts requires organization and time. If you’re not organized, this could go badly quickly.
• Changing Terms: Credit card companies may change terms, devalue rewards programs, or introduce new restrictions on earning sign-up bonuses.

Bank rules that restrict churning

• Amex “once per lifetime” rule: American Express enforces a policy where the welcome bonus for each of its credit cards can be earned only once per lifetime, making each bonus a one-time opportunity.
• Chase 5/24 rule: This unpublished rule from Chase says you can’t be approved for a Chase credit card if you have had five or more new credit accounts from any card issuer in the previous 24 months.
• Chase family card rules: Different rules for families of cards also limit welcome bonuses. For example, you can earn the welcome bonus on Chase’s Sapphire card products (Chase Sapphire Preferred and Chase Sapphire Reserve) only if you aren’t currently a cardholder and you haven’t earned the welcome bonus on one in at least 48 months.
• Citi 24/48-month rule: Citi imposes a waiting period where you're ineligible for a new welcome bonus on their cards for 24 months after closing a card, or 48 months for their co-branded cards.
• Bank of America’s 2/3/4 rule: Bank of America limits credit card applications to two within 30 days, three within a year, and four within two years.
• Capital One two-card rule: You’re able to have only two Capital One consumer credit cards at any one time.

Final Thoughts

While credit card churning might seem like a fast track to stockpiling rewards, it's a strategy that is full of risks that could harm your financial health if not managed carefully. Instead of pursuing this high-risk tactic, we suggest focusing on selecting the best credit cards that provide rewards for your most common spending categories, keeping an eye out for enhanced sign-up bonuses and special promotions when they pop up, and aiming to optimize your rewards sustainably over time. Essentially, this is a marathon, not a sprint. We’re all about prioritizing long-term financial benefits over the allure of quick wins!

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