What is Credit Card Churning and Does it Hurt Your Credit Score?

When you start applying for credit cards, you’ll soon notice that many providers entice new applicants by offering extremely generous welcome promotions. These bonuses can involve anything from an accelerated amount of points or cash back, to waiving a costly annual fee — or better yet, both! Sadly, bonus signup periods don’t last forever and the accelerated earnings and extra perks soon disappear. But does the magic really have to end?

Some credit card connoisseurs make it their mission to apply for as many credit card welcome offers as possible so they can reap the promotional rewards. They then close the card before standard annual fees and earning rates kick in. These users repeat this system on an endless cycle: Apply. Reap rewards. Close the card. Repeat. Welcome to the world of credit card churning. 

While credit card churning can earn you lots of extras, it requires careful management to avoid potential negative impacts on your credit score AND your wallet. Here’s what you need to know about the ins and outs of credit card churning. 

What is Credit Card Churning?

Credit card churning is when you repeatedly apply for multiple credit cards for the sole purpose of taking advantage of welcome offers to accumulate a higher-than-normal amount of points and rewards in a short period of time. A churner will meet the minimum spending requirements to earn the bonuses (such as charging a set amount to the card within the first three months) and then often cancel the card before the annual fee is due. 

Dedicated churners will repeat this process many times with different credit cards to accumulate rewards and perks such as cash back, travel points or other extras like a free hotel night. Sometimes, after getting the bonus and then cancelling the card, they may even apply for the same credit card after several years to see if they can once again receive the signup promo. (You may have to wait up to two years to be eligible for the card again, though it’s possible that a credit card provider may not approve your application no matter how long you wait if they suspect you’re a churner).

Does Credit Card Churning Affect Your Credit Score?

Nothing in life is free. While credit card churning can be lucrative, it does have its negative consequences and one of the biggest potential pitfalls is that it can hurt your credit score in several ways.

• Hard credit checks: The amount of credit checks you have on your credit report accounts for about 10% of your overall credit score and, each time you apply for a new credit card, issuers perform a hard credit check to look into your credit profile. This hard check causes a temporary decrease in your score. If you apply for a lot of new cards within a short timeframe, your score could dip significantly.

• Credit history: Fifteen percent of your credit score is based on your credit history. Potential creditors like to see how you’ve managed your credit over a long period of time. Opening new accounts frequently lowers the average age of your credit accounts, which can hurt your credit score. 

• Credit utilization: Credit utilization is the percent of available credit you’re using at any one time, and it counts for 30% of your score. For example, if you have $1,000 worth of available credit and you've used $400, your credit utilization is 40%. Note that a good credit utilization rate is considered below 30%. To get those credit card welcome offers, you normally have to charge several thousands of dollars' worth of purchases to the card in the first few months. Depending on how much you charge to the cards and your other credit card balances, you could potentially hurt your credit card utilization ratio (by making it higher than 30%), which would in turn cause your credit score to drop. Worse yet, if you have trouble paying off your balance in a timely manner, you could start to accumulate high-interest debt, which could potentially cancel out any of the benefits you got with the welcome bonus.

Credit Card Churning: A Hypothetical Scenario

Here's a very simplified hypothetical scenario, where credit card churning is used to earn enough points for an airline flight. Jesse is a working professional with a very good credit score of 765 who pays their bills in full every month.

• Goal: Earn enough travel reward points to be able to get a free or cheap flight

• Step 1: Jesse applies for Card A, which has a welcome bonus of 30,000 travel points if you spend $2,000 in the first six months after being approved for the card. Card A has an annual fee of $25, which is waived for the first year. Jesse uses Card A for all of their spending (groceries, gas, bills, etc.) for the next six months, easily spending over $2,000 and earning the 30,000 travel points.

• Step 2: Jesse also applies for Card B a few months later. Card B has a welcome bonus of 25,000 travel points if you spend $1,500 in the first three months. Card B also has a $35 annual fee, which is waived for the first year. Jesse uses Card B for the next three months on all of their spending, accumulating over $1,500 of expenses.

• Step 3: Jesse has earned a total of 55,000 travel points, which might be sufficient for a domestic flight or to pay off a portion of an international flight. Jesse must now keep track of the 1-year mark for both cards in order to avoid paying the annual fee. Jesse can then either choose to cancel the cards or downgrade them to a no-fee version.

• Why this works: Jesse only used the cards to pay their regular expenses and paid the cards off in full each month. This means that they did not accumulate extra debt or have to pay additional interest charges. Also, because Jesse has such a high credit score and manages their money responsibly, the hard credit checks from applying for the two cards had only a minor and temporary negative effect on their score.

Is Churning Credit Cards Illegal?

Officially, credit card churning is not illegal. You can’t get a fine or be arrested for repeatedly using credit card sign up bonuses to your advantage. That being said, credit card providers don’t generally like to encourage credit card churning. They want you to sign up for their credit cards and become a lifelong client. To discourage churning, some card providers may include fine print in their application process that says that applicants are only eligible to receive a welcome bonus once in their lifetimes, no matter how often they successfully apply for the card. 

How to Churn Credit Cards Responsibly

The fact is that credit card churning is a skill, and if you don’t do it properly, it could cost you in terms of annual fees and hits to your credit score. If you decide you want to give credit card churning a try, here are some tips to do it responsibly.

• Always pay off your credit card balance in full every month to prevent accruing debt and interest charges. Consider setting up automatic payments to help keep your finances on track.

• If you don’t intend to keep the card, be sure to cancel it once you receive the bonus but before you have to pay the annual fee, or you could end up paying steep annual fees.

• If you generally have trouble controlling your spending, it’s wise to avoid the temptation of churning.

The Bottom Line

Churning credit cards can be an excellent way to rack up points and perks like cash back quickly, but it must be done responsibly in order to prevent your credit score from being negatively affected. It's important to ensure that you're paying off your cards in full when the monthly bills come, keeping your credit utilization low and not applying for too many cards in a short space of time.