Premium subscriptions, nice hotels, exotic vacations. That’s a lot of money! What if you could get all of these for a deep discount or free?
While you’re wondering whether it’s too good to be true, thousands of people are already doing it. Of course, there is a catch. It’s not 100% free, but it’s far better than average.
Credit card churning has raised interest as a method to make extra cash with ease. Not only you get cash-back rewards but also bonuses from big brands, from restaurants to online stores and travel agencies.
However, churning may or may not be for you, depending on your financial goals. Banks don’t precisely support this practice, and it can quickly lower your credit score if you’re not careful.
Then, how are people getting all these freebies by just opening credit cards?
What Is Credit Card Churning?
Banks want you to use their cards because it’s profitable. Every time you pay with your card, the merchant has to cover a brokerage fee, which adds up quickly to the bank’s revenue.
Despite being a preferred payment method, most sellers don’t want extra charges eating up their profit margins. The solution? Add a fee for that method, which may be as high as 5%.
If enough businesses did this, it would cost more for clients to use cards, so they just wouldn’t. As a response, credit card providers now offer cash-back rewards from 1% to 5% of the purchase value. You would hardly find a bank that doesn’t do it.
Because cards make them money, they add perks for their users as well. Reach the minimum spending requirements, and they’ll reward you for it: “spend $1000 with us and get $100 for free”. The freebie, of course, is never worth more than the total spent and rarely goes over 50%.
The question is: if you’re going to spend that money anyway, why not use these cards all the time? Why not open as many as possible to claim these prizes?
Not without risks, you could get those vouchers with a bit of time and organization. Mind that these brands only offer them once per person (to attract new users), which is why churners close and reopen accounts every year.
Churning In Four Steps
Surprisingly, it’s quite straightforward to take advantage of card bonuses. The hard part is receiving those rewards consistently and avoiding all of the risks.
- Choose your benefits. Learn about some cards and pick the ones that offer the perk you want and apply for them. It will be easy if you’re indeed a new client and have an excellent credit score.
- Reach the Minimum Spending Requirement (MSR). Pick a card with an MSR you can handle. If you spent money you don’t have to reach the MSR, it would defeat the purpose of credit card churning.
- Claim your bonuses. As soon as they are available, spend those points on flights, hotels, restaurants, subscriptions. Remember that yearly rates may apply later, so reserve a part of your winnings just in case.
- Drop out and repeat. Most churners will stop using the account after claiming the rewards or downgrade the card. Most banks will waive the first year payment, but they require you to pay, just cancel your card. To reset the cycle, apply for a new card with them as soon as you can.
As you can see, credit card churning has its benefits:
- Habitual perks: Instead of saving points for years, you can receive prices more often (as soon as you get the MSR). With so many cards, you’d probably get discounts for any purchase made, also getting freebies every few months.
- Annual rate avoidance: Although you may need a good reason, most banks will waive the payment for the first year. Closing accounts should be just as easy, but not recommended.
- Cash-back rewards: You can capitalize on your spending habits and always get the best deals. As a big spender, credit card churning may someday save you over five figures.
These privileges only make sense if you know how to sort the many risks:
- Complexity. More accounts mean more numbers to track and bigger security concerns. You won’t be able to manage dozens of cards without some software unless you are willing to spend four hours a day accounting. If keeping an excellent credit score is already hard, imagine how it will be with so many credit lines. You will likely miss a few payments due to confusion.
- Temporal credit score drop. New credit lines reduce your average credit length and increase your number of yearly applications. Both variables lower your score to some extent. Although it’s temporary, you shouldn’t churn credit cards if you require a high score for another agreement, like a mortgage. Even afterward, your score may not be as high as it used to be.
- Indefinite credit score drops. Having more cards that you can manage might lead to missing payments, which affects 35% of your score. Along with credit length, it may take you a while to fix your credit.
- Time-limited. Nobody knows for how long those perks will be around. If an opportunity is too good to be true, it may not last long. New banking firms may offer better rewards because they need to attract clients. But after the launch stage, they may change the reward program.
- Restricted. Banks are already limiting the rewards their users get, let alone rewarding a non-client. Most have added yearly inquiry limits and designed their programs to make churning unlikely to happen.
So even if the benefits outweighed the risks somehow, your bank would still control what perks you receive. If they consider what you do is dishonest, they may cancel your vouchers and close the account. You can find cases of people who got this surprise after they already claimed a flight, for example.
- Some perks only apply once per person, per lifetime (e.g., Bank Of America).
- You can only apply a few times and cannot reopen the same card until one or two years pass.
- You may or may not exclude from the yearly fee, depending on your bank.
How many credit cards should one have?
Before you decide whether it’s worth it for you or not, remember there’s not a single way for credit card churning. Depending on your tolerance to risk and reward, some people may find low-risk practices acceptable.
People with extensive credit history may likely have several. But how many cards should you have at all?
a. The minimum viable. Credit cards are not your thing, you don’t like debt, and prefer to keep personal finance simple. Then, you should open no more than three cards: one for cash-back rewards, another for bonuses, and the other for emergencies.
Imagine you want to apply for a new card in the future, but that will drop your credit score temporarily. That’s when the emergency card can be useful.
b. The average. You can keep four to five main cards. It helps to have more credit lines to boost your credit score. But make sure you can manage them well, don’t miss payments, and open them all at once (or as soon as possible). Once you have those, you can freely apply for one or two cards every year without affecting your score.
c. High-risk card churning. You would apply to as many cards as possible, several times a month. If approved, any payment you make will likely move you to the MSR and earn rewards. Churners will need over twenty cards to rotate around the year, also to wait until they can reopen the other ones.
How many should you have? It depends on the number you feel comfortable with, as well as your needs.
- Cashback cards offer general discounts for restaurants, gas, groceries, and other physical businesses. Some offer free subscriptions (Netflix, Amazon Prime, Spotify), even extended guarantees on purchased electronics.
- Travel credit cards usually offer greater value, but that’s relative to your traveling schedule. Variations for this include airline and hotel-branded cards.
Is High Credit Possible With Card Churning?
We’ve heard of people who own dozens of cards and somehow keep their FICO score over 800. It will take money and time, but it’s possible.
The catch 22 is, you need a high score to qualify for the best cards and increase chances of approval. But opening new lines shortens your credit length and increases your application rate, lowers your score, and makes future applications harder, especially when reopening accounts.
These drawbacks are temporary. But understand it may take years before you can balance all those accounts with your ideal score. Here’s how to do credit card churning safely:
- Open them as early as possible. Opening one later will lower your length, but opening many cards at once won’t. The more you already have, the less new cards will affect your credit length.
- Learn how to organize. Use software like CapitalOne to manage all your accounts from one place. It becomes much harder to miss any payments.
- Be smart with MSRs. Don’t commit to mindless spending to get those rewards. Also, consider exchanging money with a trusted person, so you can get the perks without spending anything.
- Solve cancelation issues. If you cancel within the first year, you can reopen after 24-48 months. Better than canceling is to downgrade a card you no longer use. If you do need to close it, at least don’t do it in the first year. It may cost the yearly fee, but it will be easy to open it later.
Anybody could see these bonuses as a saving life-hack. In a world where everything becomes more expensive, it makes sense to reward clients for using these methods.
Now, don’t expect to make this your new income stream. When it comes to wealth, your credit score is worth more than a few thousand dollars.