Credit card churning refers to repeatedly opening and closing credit cards to gain welcome bonuses or other benefits. This method involves getting a new credit card, meeting its minimum spending requirements to get the bonus, and canceling it before the annual fee. Credit card churning has financial benefits, as this credit card churning guide explains. However, card issuers often view this rapid succession of account openings and closures as risky.

Initially, credit card churning meant applying for the same card multiple times. The goal was to receive a card's sizeable welcome bonus repeatedly, cancel it, and reapply. Credit card switching allowed people to earn big rewards.

Eventually, credit card churning emerged. It now involves applying for multiple credit cards and repeating the process every few months, called "App-o-rama." In this method, a person uses various cards at once and waits a few months before applying again.

Credit Card Churning and Its Impact on Credit Scores

Recent Applications

Credit card churning depends on account opening frequency. Your credit score is partially affected by new account openings. Multiple credit card requests in a short time may indicate financial strain to lenders. You may appear at high risk for future loans or credits.

A six-month gap between credit card applications is recommended for most people. However, those with high credit scores may not have to follow this deadline. The credit card churning guide recommends applying for multiple cards at once and then waiting several months before applying again. This method reduces credit score impact.

Duration of an Account

Credit scores depend on credit history length, which can be affected by closing credit cards—your credit utilization and average account age change when you complete a credit card. Instead of completing unused cards, store them securely to maintain your credit limit and account history.

If you're not using a credit card with an annual fee, consider switching to one without. Credit card switchers often use this product change strategy.

Credit Utilization

Credit card churning affects your credit utilization ratio, determining your credit score. This ratio measures how much credit you use compared to your limit. I always prefer a lower ratio. Multiple credit cards can increase your credit limit and utilization ratio. This assumes you have little debt and pay your bills every month.

However, accumulating debt on multiple credit cards for sign-up bonuses can hurt your credit score. If you pay these balances, your credit score may improve. This must be considered when churning credit cards.

Payment History

Turning over credit cards can also affect your payment history, which is the most critical factor in your credit score. Juggling multiple cards to maximize rewards increases the chance of missing a payment.

Late or absent payments can hurt your credit score. Set reminders and automate payments to reduce this risk. These precautions may not prevent missed payments due to the complexity of managing multiple cards. Credit card churning requires vigilance and organization.

How Banks Counteract Credit Card Churning

Bank of America®

Although not publicly disclosed, Bank of America®'s 2/3/4 rule addresses credit card churning. The regulation limits new credit card authorization to two every two months, three every 12 months, and four every 24 months.

This method effectively controls account openings and reopenings. Customers who received a Bank of America® credit card within two years cannot apply for another card or receive a bonus. This policy reduces credit card churn and encourages credit usage.

Chase

Chase uses the 5/24 rule to combat credit card churning. This informal policy restricts people who have opened more than five personal churning credit cards in the past two years, regardless of issuer.

With this rule, Chase wants to discourage short-term credit card holders and attract long-term bankers. This strategy balances attracting new customers and preventing credit card churn.

American Express

A direct policy by American Express reduces credit card churning. They offer welcome bonuses on most credit cards once per person, lifetime.

An individual who previously had an American Express card, terminated the account, and then applied for the same card will not qualify for the original introductory incentive. The company wants to build long-term customer relationships, so this policy prevents customers from opening and closing the same credit card.

Credit Card Churning Risks

Possible Bank Account Closures

Credit card churning involves applying for credit cards regularly to earn rewards. Unfortunately, this approach can backfire. If banks suspect you're abusing their rewards programs, they can close your accounts. Checking and savings accounts were closed for some cardholders. This is not only inconvenient but could affect your finances. When churning out credit cards, you must follow the card issuer's rules, which can change anytime.

Reward Loss

Churning credit cards for rewards may result in losing them. Card issuers can cancel your points or miles if they suspect you're cheating. Imagine receiving rewards and having them confiscated. If you have a negative rewards balance, future earnings will be used to make up the difference. Thus, credit card churning may not yield the expected results.

Effects of Credit Score

Multiple credit cards can hurt your credit score. Every new application triggers a hard inquiry, which can lower your credit score. This must be considered when churning credit cards. A single new card may not significantly impact, but multiple applications can. Protecting your credit score is crucial to making major financial decisions.

Risk of debt accumulation

Meeting minimum spending requirements for credit card churning can lead to debt, mainly if unexpected events like unemployment occur. Rewards card debt can quickly grow due to high-interest rates. Unexpected events can derail your plans to pay off debts.

Advantages of Credit Card Churning

When executed correctly, credit card churning may provide a healthy return. This strategy entails carefully creating and shutting credit card accounts to get the most out of sign-up bonuses and other incentives.

After receiving a bonus or before a promotional period ends, closing your account can save you annual fees and interest. This strategy lets you earn great airline miles, giving you free flights to South Africa or Fiji.

Benefit optimization is possible for credit card churners with expertise. This includes cutting hotel and gift costs. Cash back from credit card churning can also help pay off debt or build an emergency fund. This credit card churning guide emphasizes careful management to maximize benefits and minimize financial risks.