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Credit Card Churning-Are the Risks Too Great For The Rewards?


So, to churn or not to churn is the question. Credit Card Churning is a technique of opening new rewards credit cards in order to earn the big, multiple sign-up bonuses. Sign-up bonuses are valuable incentives offered by credit card companies to lure you in as a new customer.

The process is relatively straightforward. You find the rewards credit cards that are offering the most valuable sign-up bonuses, you apply for the card, and you either get approved or denied. Simple right? Before you get lured in, there are a few things to keep in mind:

The rewards of credit card churning:

Credit card churning is best for those that are extremely organized, highly disciplined and have little or no debt. Also, the best offers are reserved only for those with the best credit, so it helps to have excellent credit already established.

Read the fine print to keep track of the terms and conditions of each card. Most cards require the cardholder spend a certain dollar amount within a specified amount of time to collect the credit card rewards. For example, you can earn 40,000 bonus points after you spend $4,000 during the first three months with the Chase Ultimate Rewards Sapphire Preferred card.

There is no doubt that you can collect points and miles quickly through credit card churning. It is best to apply for a few cards throughout the year with different banks. It is not a good idea to apply for multiple credit cards through a single bank and close them out. You will be sending out a message that says that you are not a good customer.

The risks of credit card churning:

The practice of churning can lead to credit card debt. Make sure that the spending requirements are realistic and that you can pay off the balance every month. Everyday purchases are the best way to earn rewards. Do not spend money just to receive the rewards unless you can pay off the entire balance.

Applying for multiple new credit cards may damage your credit score.  Every time you apply for new credit, a hard inquiry is made into your credit history. For each inquiry, there will be a small, temporary drop in your credit score. It may be best to wait to apply for multiple new cards if you are looking to take out a mortgage, buy a new car, or rent an apartment.

Avoid cards with an annual fee. Some cards will waive the fee for the first year, but be sure to keep track of when fees become payable, as you will be charged automatically. Reward credit cards typically carry higher interest rates, so look for the cards with the lowest possible interest rates.

Maintaining excellent credit is your top priority. Good credit is more valuable than points or miles earned through credit card churning. You need good credit to secure car loans and a mortgage, so spend wisely and you will get your dream vacation.

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