When you think of the word “churning,” what’s the first word association that comes to mind? For me, it was “butter,” as in butter churn.
But in the finance world, a relatively new and certainly risky practice has emerged, known as “credit card churning,” which has nothing to do with butter.
In fact, it has a lot more to do with cheese than anything else. Or bread, if I must continue to deliver bad money puns…
That’s right – the art of credit card churning was cultivated to make money without really lifting a finger. All that is necessary is typing (filling in credit card applications) and swiping (spending on said credit cards).
What Is Credit Card Churning?
In short, credit card churning is the act of opening and closing credit card accounts frequently to take advantage of various promotions, such as opening bonuses, spending bonuses, and so forth.
Some refer to it as “app-o-rama” because you apply for a handful of credit cards all at once every few months. Then rinse and repeat.
Some churners literally apply for 4-5 credit cards in a day to get them all approved before their credit reports begin to look really, really suspect. And as a rule of thumb, it’s recommended to start with what you think will be the most difficult approval and then move backwards to the easier approvals (assuming you want to open a bunch of cards at once).
Earning Big Bonuses, Over and Over Again
A savvy consumer can literally earn thousands upon thousands of dollars annually via credit card churning, thanks to the ridiculous bonuses offered by credit card issuers these days.
For example, say credit card issuer “X” offers a $500 bonus if you spend $5,000 in the first three months of cardmembership. This is actually a real-world scenario because you can get 50k bonus points via Chase Ink if you spend $5,000.
All one has to do is apply for the card, shift their normal spending from their old card(s) to the new card, meet the spending requirement, earn the bonus, and move on. Hardcore churners will open multiple versions of the card, such as the Chase Ink Bold and Chase Ink Plus, earn 100k+ bonus points and then cash out.
To make it even sweeter, churners will increase spending in bonus categories (such as 5X at office supply stores) to maximize their point accrual.
If the card has an annual fee, typically they can avoid paying it for the first year and close the card before it’s due. But before they close it, they’ll either redeem the points, transfer them to a different card, or transfer them to a partner loyalty program. That way they’re safe even if their credit card is no longer in existence.
In the process, the savvy cardholder gets a decent chunk of cash (or travel rewards), and the card issuer just spins their wheels, thinking they’ve acquired a new credit card customer, though they still earn interchange fees in the process.
The aggressive churners will close their cards, wait X amount of months, and then apply for the very same card to get the bonus again. Some card issuers have restrictions on this, but others don’t, and even if there is a restriction, it might only be for 24 months since you last received the bonus.
Earn Free Airline Flights and Hotel Stays
Another common example of churning involves travel rewards credit cards. Say an airline offers 100,000 bonus miles if you sign up for their card and spend “X” amount. The Citi Executive AAdvantage World Elite MasterCard offers a startling 100,000 American Airlines miles after you make $10,000 in purchases within three months of account opening.
If you meet their spending requirement, you might earn yourself a first-class roundtrip flight to Europe on their dime, or many free trips across the country. The really good churners fly first class across the world and stay at the finest five star hotels at no cost to them. Thanks Hyatt.
The possibilities are endless really, depending on what credit card issuers are willing to offer up. They’ve definitely eased up lately, though there are still plenty of easy-money deals out there for those willing to put in the legwork.
Tip: If you want to churn successfully, make sure you don’t have balances on any of your credit cards. Zero balances on existing cards will up your chances of getting approved for subsequent credit cards, even if you apply for stacks and stacks of new cards constantly.
Downsides to Credit Card Churning
While this might sound like a great idea, or even a second job or side hustle, credit card churning does have plenty of downsides.
For one, it requires you to open a new credit card account. Every time you apply for a credit card, you will be hit with a credit inquiry, which will remain on your credit report for two years.
These can lower your credit score, especially if you rack up a ton of them in a short period of time.
They are particularly harmful if present on your credit report when applying for other more important loans, such as an auto loan or a mortgage. Do you really want a $200 cash back bonus to put your home purchase in jeopardy?
Secondly, each time you successfully open a new credit card, the average age of your accounts is essentially shortened. If your credit history is full of recently opened accounts, your credit score will again suffer a drop.
Many of these bonus offers and deals also require you to spend a lot of money. If you’re not careful, you could spend beyond your means, or just frivolously ring up purchases to meet the spending requirements. Kind of reminds me of the movie Brewster’s Millions.
Hey, it’s great to earn cash back, but not by spending more money than you normally spend. That kind of defeats the purpose, right?
Credit Card Issuers Are Cracking Down on Churning
Lastly, you may find that your churning dreams will be dashed in no time at all if credit card issuers catch on. If they see that your credit history is full of open and closed credit card accounts, they may be quick to deny your application.
In fact, Chase has already introduced the so-called 5/24 rule, which automatically denies you if you’ve already opened five new credit cards in the past two years. That should stop most churners in their tracks.
American Express also imposed a once-in-a-lifetime bonus on their consumer cards. Expect other issuers to follow suit, making the churning game all the more difficult.
Still, if you are new to the game, you can still take advantage of tons of different offers…the only thing that’s required is more (and better) planning before you get started.
So if you want to make the most of credit card rewards, apply sparingly and only when a deal is too good to pass up. Otherwise you might just cost yourself money in the process.
If you’re hellbent on credit card churning, make sure you do your research first. There are a lot of unwritten rules to the game that you should be aware of before you go head-to-head with the credit card issuers. And they change daily.
(photo: Brian Boucheron)