What is credit card churning?

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If you’re a credit card rewards enthusiast who stays on top of news in the world of points and miles, it’s likely you’ve come across the term “credit card churning” before. This practice isn’t quite as popular as it used to be, mostly due to recent changes imposed by card issuers. However, you’ll still find people actively taking part in credit card churning, at least in whatever ways they can.

Getting the most out of your rewards credit cards is always smart, but churning cards isn’t necessarily the way to go. There are plenty of ways churning can impact your finances and your credit score. For example, “churning” cards can ultimately leave you with credit cards that don’t actually fit well with your needs but still require annual fees to be paid each year.

We’ll take a closer look at how credit card churning works, all the potential downsides and what you really should be doing instead.

How credit card churning works

Credit card churning involves signing up for new credit cards every few months in order to earn their initial signup or welcome bonuses. The term “churning” comes from the fact that you’re only using each card for a limited time (until you reach the minimum spending requirement for the bonus) before you move onto another card and complete the same process over again. While some churners keep rewards credit cards that offer benefits they can use, others simply cancel them within the first year, usually to avoid the next year’s annual fee.

Churning is fairly popular among “travel hackers” who want to earn considerable sums of airline miles or hotel loyalty points in order to get entire trips for free. However, consumers have also been known to churn cash back credit cards and flexible rewards credit cards as well, especially cards that offer lucrative initial bonuses.

How does churning affect your credit score?

Aside from the obvious headaches that come with keeping track of multiple spending requirements, signup bonuses and credit card annual fees, it’s important to understand how churning can affect your credit score. For starters, opening a lot of new credit cards in a short amount of time, which is what churning requires, will absolutely have a negative impact on your score. That’s because each new card application will place a “hard inquiry” on your credit report, and those inquiries can add up fast. Note that “new credit” makes up 10 percent of your FICO credit score.

Another factor primed to take a hit when you churn credit cards is the length of your credit history, which makes up 15 percent of your FICO score. Obviously, opening new cards frequently will drastically shorten the average length of your credit history, as will closing all the cards you kept just long enough to earn an initial bonus.

If you get carried away with all that new credit and rack up debt through churning that you can’t afford to pay off, you’ll hurt yourself in more than one way. The amounts you owe in relation to your credit limits make up another 30 percent of your FICO score, and you will likely start to see your score drop once your overall credit utilization reaches and surpasses 30 percent — e.g. you owe $3,000 in debt for every $10,000 in available credit limits you have.

And that’s beside the fact that the average credit card interest rate is over 17 percent, and that travel and rewards credit cards often charge rates higher than that. If you carry balances on travel credit cards when you’re in the midst of churning, you’ll likely pay a lot more in interest than any rewards you receive in return.

Other downsides of credit card churning

Your credit score can easily suffer if you choose to churn credit cards, but that’s not the only downside you might deal with. Keep in mind that most rewards credit cards that offer big bonuses worth “churning” for will require you to spend a few thousand dollars or more, usually in the span of three or four months. If your regular expenses aren’t high enough to meet these thresholds easily, you could wind up having to get creative to meet minimum spending requirements, whether that means buying gift cards or splurging for purchases you don’t actually need.

Not only that, but you risk ruining your relationship with credit card issuers, which could bar you from getting approved for cards you actually want for the long haul later on.

So many people have abused lucrative card offers over the years that some card issuers have already taken preventative steps to ward off churning. Chase, for example, rolled out a 5/24 rule that limits new cards to potential customers who haven’t had more than five new credit cards within the last 24 months. American Express famously has a “once per lifetime rule” that states each cardholder can only earn the bonus once on each of their card offerings during their lifetime.

Finally, don’t forget that all the top rewards credit cards come with annual fees, and that not all of them waive the annual fee the first year. Most churners cancel cards after they earn the initial bonuses they offer, but this could still leave them paying hundreds of dollars in annual fees for cards they don’t even plan to keep. These fees can and do add up, but not everyone who churns takes the time to figure out how much they’re paying each year.

Better alternatives to churning

There is nothing wrong with signing up for new credit cards and earning the initial bonuses they offer, but you’ll be much better off in the long haul if you limit new cards and focus on the offers you want the most. Better yet, only sign up for new credit cards that offer cardholder perks and benefits you can see yourself using and getting value from — for example, airport lounge access, Global Entry or TSA Precheck credits, or generous cash back for the categories you spend the most in just as part of your regular spending.

Also make sure you’re using each of your rewards or travel credit cards to their full potential, and that you’re taking advantage of any bonus categories your card offers. Other ways to earn more rewards that don’t require a merry-go-round of new credit cards include shopping through rewards portals and signing up for airline dining programs.

The bottom line: You shouldn’t put your credit score and your finances on the line in order to rack up more rewards or score a “free” bucket list trip. Be more selective with the cards you sign up for and make sure you maximize each one, and you’ll still end up ahead without all the risk.