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What is credit card churning?

You might be curious about credit card churning because of its high rewards – but be aware of the risks before you try it


People credit card churn for attractive sign-up bonuses, but the practice can come with consequences to your credit and financial health.

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When you get into rewards credit cards, earning cash back, points or miles can easily become addictive.

A sign-up bonus is the sweetest rush, as it’s usually your best chance to earn a large number of points or a nice cash boost in a short period. After that, earning rewards isn’t that quick anymore, and paying an annual fee can be quite sobering.

Cards users, however, prefer to have their cake and eat it, too. They turn to credit card churning, a process of frequently opening new credit cards simply to earn sign-up bonuses, then closing the accounts. This way, they snag high rewards and sometimes even avoid an annual fee, since some issuers waive that for the first year.

We all know that too much cake isn’t good for you, and credit card churning comes with consequences to your financial health that easily outweigh the benefits.

Here’s what you need to know about credit card churning and the risks associated with it.

How does credit card churning work?

“Credit card churning is essentially the practice of frequently applying for credit cards with the aim of taking advantage of the sign-up bonuses,” Freya Kuka, a personal finance expert and founder of the blog  Collecting Cents, explains.

“Most people who are guilty of churning do not even aim on using the card after they take advantage of the bonus. The idea is to make some extra cash, gain points or miles and make a quick buck by taking advantage of bonuses.”

According to Kuka, this makes credit card churners “a credit card company’s nightmare.”

While the idea of earning bonus after bonus may seem appealing, think twice before you decide to try this practice. By churning, you’re not only doing your credit card issuers a disservice – you might also be putting your financial well-being at risk.

What makes credit card churning risky?

First, it’s important to be aware of what credit card churning can do to your credit.

For starters, frequent credit card applications don’t go unnoticed, and their presence on your credit reports can affect your scores, as well as how lenders see you. When you apply for a new credit card, a hard inquiry appears on your credit report. It stays there for two years and affects your credit score for one year. The impact of a single inquiry can be minor, but if you apply for multiple credit cards in a short period, the damage to your credit can be significant.

For lenders and credit card issuers, this can also serve as a signal that you’re in financial trouble or simply not being responsible with your credit cards. This can create issues when you’re applying for a loan, especially if it’s something major like a mortgage or a car loan.

Second, new credit cards on your file will lower your average account credit age. While the length of your credit history is not the most influential factor in your credit score, it’s one that takes a long time to improve. Coupled with hard inquiries weighing your scores down, multiple new credit cards can cost you a considerable number of points.

Finally, perhaps the most dramatic credit score drop associated with credit card churning comes from higher credit utilization. Your credit utilization ratio (your credit card balance relative to your credit card limit) is the second most important factor in your FICO score and accounts for 30% of it.

You should aim to keep your credit utilization below 30% to avoid any damage to your credit. Since earning credit card bonuses requires meeting a minimum spend, it’s easy to lose track of this ratio when you’re juggling multiple cards.

Risks to your financial health

When you’re pursuing a few bonuses at the same time, you might find yourself in more debt than you can handle.

“It’s very easy to lose focus and get into a huge debt and other potential risks and pitfalls,” says Timothy Hansen, founder of Wealth Growth Wisdom.

“You could get into debt if you do not make sure to have enough money for you to cover the monthly payments…[and] the annual fees could turn out to be a hefty sum.”

Remember that any interest you pay while trying to meet the minimum spend also negates rewards you earn.

Issuers fight credit card churning

Credit card issuers caught on to card churning long ago. Many have policies in place to prevent cardholders from taking advantage of this practice. For example, Chase has a renowned 5/24 rule that prevents you from opening another credit card if you’ve opened more than five (with any issuer) in the past 24 months.

American Express is also rather strict and offers a once-per-lifetime bonus on most of its cards.

Citibank has a less stringent, 24-month rule on the majority of its credit card products – if you cancel a card, you won’t be able to reapply and get the bonus again for at least 24 months (and sometimes up to 48 months).

Your credit card issuer can also penalize you even without any policies in place. According to Lindsay Rash, founder of Spend Rich, credit card churners risk getting shut down or blacklisted by credit card issuers.

“Some issuers are fairly lax while others will not tolerate any gaming or churning,” she says. “Consequences can be clawbacks of your rewards, shut down of your accounts and rejection from any future applications.”

Safer alternatives to credit card churning

The truth is, while churning can seem exciting, you don’t have to jump from card to card to maximize your cards’ potential. In fact, you may find it much more rewarding to choose your cards wisely based on your spending habits and goals, stick to them and use them thoughtfully.

“I would suggest being a good credit card user, because nowadays credit card companies are rewarding loyalty more than ever before,” Freya Kuka recommends. “You are more likely to receive good interest rates, exciting bonuses in the mail and great service when you are loyal to your credit card issuer.”

With all the perks, credits and limited-time promotions that rewards credit cards offer, you can often get the most out of your card if you keep it and stay on top of any updates from the issuer. Plus, doing that will look good on your credit report and show lenders you’re responsible with your credit.

Bottom line

Credit card churning comes with high rewards and high risks, especially if you don’t pay off the balances on your new cards right away or if your credit is less than excellent.

Instead of going for glory, we recommend focusing on the cards you have. Maximize their value and build relationships with your creditors – and only sign up for a new card when you need one.

“Card issuers are not the bad guys here,” Kuka says. “Everything depends on how you handle that card.”

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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