What you need to know about credit card churning
Learn about what the practice is, its benefits and its drawbacks
We’ve all seen the huge number of credit card advertisements in the media. Each one seems to offer a different set of benefits, like more miles, cashback, and new member incentives. These benefits can be enormously tempting, and sometimes, it is hard to choose just one. In fact, some people decide not to pick, and instead, they sign up for one credit card and then later sign up for another one. This practice is called credit card churning and has both positive and negative benefits.
How people practice credit card churning
Churning can be a lot like keeping a lot of plates in the air, spinning at the same time. Basically, the practice consists of signing up for one card and remaining a customer just long enough to reap the benefits. Once enough time has passed, the same borrower cancels their first card and applies for their second.
Churners continue this in an ongoing manner, becoming “serial applicants” with multiple creditors. In addition to becoming serial credit applicants, some creditors have been known to open, close, and then reopen the same credit card and to receive those benefits a second time.
Ways that the practice can be risky
It can be tricky to track payments schedules on multiple cards or to judge if you have enough money to pay for everything you’ve been spending on each card.
While credit card churning sounds like it has a lot of benefits, it can actually be pretty risky. Most directly, the practice can harm your credit score because it requires frequently opening new lines of credit and spending on them. The act of opening credit requires credit checks that, in and of themselves, can take your score down by a small amount. Repeated dings add up. To get around this, some churners apply for multiple lines of credit between a concentrated window of time — like 30 days.
In addition, it can be tricky to track payments schedules on multiple cards or to judge if you have enough money to pay for everything you’ve been spending on each card. If you get behind or miss a payment because you lose track, that’s not good news for your credit. On the flip side, a good practice that some churners use is to pay their balance in full each month. This allows them to keep an on-time payment record and to avoid the interest charges that come with carrying a balance.
Another way that churning is risky is that borrowers close accounts when they’re done using them, so they don’t have to pay annual fees. Multiple account closures can also be negative. Some account holders choose to keep a card open and absorb the fees if they’re not too large.
Five things to keep in mind if you’re considering credit card churning
If you’ve decided that you can manage the risks and you want to give credit card churning a try, there are a couple of principles to keep in mind. These will provide you with the best chance of experiencing benefits and avoiding the drawbacks.
- Track payment due dates. monthly balances, your opening dates and amount charged, and your yearly fee schedules. You might even want to use a spreadsheet to keep track of these.
- Know how many credit cards you can handle while still paying off the balance each month
- Be aware of how many cards you open in a specific time window
- Be clear on the details of the card.
- Read the fine print on card applications and benefit details.
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