What is Credit Churning and Does It Affect Your Credit?

Written By Guest Post
Last updated May 8, 2020
December 2, 2019

Simple. Thrifty. Living.

Periodically, credit churning becomes a popular topic of conversation among people such as travel bloggers, who can use credit churning to score free or deeply discounted trips. But what exactly is credit churning?

In short, credit churning is the process of opening new credit card accounts to receive the rewards, which can include cash back, extra points (that may be converted to cash or other prizes), and travel accommodations, among other things.

While credit churning doesn’t have to impact your credit score drastically, it does impact it. This is especially true of people who attempt to churn their credit but who are unable to pay off their credit debts in full each month. People who have already have a large credit card debt and anyone who struggles to pay credit cards on time, as well as those who have never used a credit card, are less than ideal candidates for credit churning. If your credit score is low and you are only qualifying for credit cards for average credit, it can also be harder to credit churn.

Furthermore, credit churning is only a successful venture for those who do their homework. It’s not enough to apply for new credit cards. You must choose the cards that offer high enough rewards to offset any fees. Additionally, you must take into consideration any consequences from canceling those cards once you have received the rewards. On top of this, some credit cards require credit minimums, which could raise a person’s overall credit card debt and may make it difficult to pay off monthly balances in full.

This ties into the idea that a person should have a goal for their points. It could be travel;
however, it doesn’t have to be. Knowing what you want to get out of credit churning helps you to focus on the cards that are right for you. Just because a card has good rewards does not mean it is the right fit. It is necessary to read the fine print. For example, some credit card terms of service prevent a person from receiving a signup bonus if they’ve received a reward for that same card in the past.

People who churn credit cards take it seriously. They create spreadsheets to track cards, applications, and their credit card debt. They may reach out to credit card companies to look for offers that may not be readily advertised.

It is also important not to open too many credit cards in any given period. Some companies will deny applications because you have opened too many new accounts within the last 12 or 48 months. With this in mind, you should only apply to the credit cards that will be the most beneficial.

There is a balance to find between credit churning and your credit score, which takes
a hit each time you apply. Similarly, keep in mind that some credit companies limit how many cards you can have with them at once.

One common misconception about credit churning is that you can just transfer amounts between cards. However, terms of service typically require new expenditures and not balance transfers to meet the requirements for bonuses.

If you understand how credit churning works and do your homework, however, it can be done successfully.

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