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 cashback, 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 new-applicant promo rewards. They then close the card before standard annual fees and earning rates kick in. They repeat this system on an endless cycle: Apply. Reap. 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, 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 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. To get those credit card welcome offers, you normally have to charge several thousands 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, which would in turn drop your score. 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.

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 signup 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 life-long 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 the balance to prevent debt.

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

• If you 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 cashback quickly, but it must be done responsibly in order to prevent your credit score taking a big hit. It's important to ensure you're paying off your cards in full when the bill comes, keeping your credit utilization low and not applying for too many cards in a short space of time.