Credit card churning: What is it, and is it worth the risk?

Rewards credit cards offer enticing perks: cash back, points, or miles for everyday spending. While earning on each purchase is nice, the rewards can take a long time to add up to a meaningful amount.

Enter the world of credit card sign-up bonuses. You've probably seen the flashy offers: "Earn 80,000 points when you spend $4,000 in three months!" or "Get $200 cash back after spending $750!" These bonuses can fast-track your rewards, but some spenders try to game the system with credit card churning.

Credit card churning aims to maximize rewards by constantly pursuing new sign-up bonuses. However, this high-stakes strategy has significant risks that outweigh any potential benefits.

What is credit card churning?

Credit card churning is the practice of repeatedly opening new credit cards to earn their sign-up bonuses, then closing the account and moving on to the next card.

Rather than applying for cards with rewards categories or perks they’ll use for the long term, churners aim for the biggest bonuses available, often closing cards before the second annual fee hits.

While the potential rewards are significant, churning comes with substantial risks. Let’s dive into how it works, the possible pitfalls, and why most financial experts advise against it.

How credit card churning works

Churners typically follow these steps:

1. Research cards with lucrative sign-up bonuses
2. Apply for chosen cards, often timing applications around large planned expenses
3. Meet the minimum spending requirement to earn the bonus
4. Move on to the next card, sometimes applying for multiple cards on the same day

Churning can seem like a way to get “free money,” but it’s more like trying to time the stock market. A few people might win, but most people don’t.

Risks and drawbacks of credit card churning

While the potential rewards of churning sound appealing, it comes with significant risks.

Impact on your credit score

One of the most obvious risks of churning is damaging your credit. Each credit card application results in a hard inquiry on your credit report, which can lower your credit score. A hard pull here or there won’t do much to your credit, but multiple applications in a short time can have a more significant impact.

Opening new accounts also reduces the average age of your credit history, another factor in determining your credit score. This double hit can substantially lower your score, potentially affecting your ability to qualify for loans or favorable interest rates in the future.

Financial risks

Churning also poses several financial risks:

• The minimum spending requirements for most cards with big sign-up bonuses are typically thousands of dollars. It can be easy to overspend to meet these requirements.
• You might also find yourself carrying a balance on some of the cards, especially if you wind up overspending. That means dealing with the high interest rates charged by most cards.
• Finally, many cards with large bonuses are premium cards with higher annual fees. While the rewards you can earn may offset those fees, if you’re banking points and miles rather than cashback, you’ll have to pay those fees out of pocket, which can add up quickly.

“The challenge with churning is that if you end up paying any interest or a fee, you probably lost the game,” says Jay Zigmont, a certified financial planner and founder of Childfree Wealth. “No one plans on paying fees or interest, but life happens.”

Relationship with card issuers

Credit card companies don't appreciate churners trying to game their system. They may take back rewards, especially if you’re using techniques to make it appear that you’re spending money on the card without actually doing it.

In some cases, credit card issuers will close accounts of churners and may even blacklist them from future applications. That could block you from having a credit card that you might want to keep and use for the long term.

Bijal Gami, vice president of Card Portfolio and Operations at Members 1st Federal Credit Union, adds another perspective: “Even if you successfully accumulate rewards, their value can be unpredictable. With airline points, for example, there are so many variables. The same number of points might cover a flight on a Tuesday but not a Friday, or there could be blackout dates when you can't use your points.”

How banks combat churning

Credit card issuers have implemented various rules to discourage churning:

• Chase's 5/24 rule: Automatically declines applicants who have opened five or more credit cards in the past 24 months.
• American Express's once-per-lifetime bonus rule: Limits sign-up bonuses to once per card per lifetime.
• Citi's 8/65 rule: Requires an eight-day wait between applications and limits approvals to two cards in 65 days.
• Bank of America's 2/3/4 rule: Limits approvals to two cards in 30 days, three in 12 months, and four in 24 months.

These rules force churners to be increasingly strategic, often waiting months or years between applications for the same issuer's cards.

Is credit card churning worth the risk?

For most people, the answer is a resounding no. The potential damage to your credit score, financial health, and relationships with card issuers outweigh the possible rewards.

Matt Bundrick, co-founder of BankBonus.com, suggests a more moderate approach: “Instead of aggressive churning, consider watching the trends for particular cards you want and only applying when the signup bonuses are elevated. Some sign-up bonuses can nearly double if you catch them at the right time versus applying when they are at their standard amounts.”

Responsible alternatives to churning

Instead of churning, consider these strategies to maximize your credit card rewards:

1. Choose cards aligned with your spending habits: Look for cards offering bonus rewards in categories where you spend the most.
2. Use multiple cards strategically: Carry two or three cards with different bonus categories to maximize earnings across various purchases.
3. Pay attention to rotating categories: Some cards offer higher rewards in categories that change quarterly. Mark your calendar to take advantage of these offers.
4. Stack rewards programs: Combine credit card rewards with store loyalty programs or cash-back shopping portals for extra savings.
5. Take advantage of card perks: Many cards offer benefits like travel insurance, purchase protection, or extended warranties. Using these can provide significant value without the risks of churning.

Tips for responsible credit card use

Instead of churning, consider these strategies to maximize your credit card rewards:

• Focus on long-term value: Consider a card's ongoing rewards and benefits, not just a flashy sign-up bonus.
• Always pay your balance in full: Credit card interest can quickly negate any rewards you earn. Pay off your balance each month to avoid accumulating credit card debt.
• Keep track of your cards and spending: Use a spreadsheet or budgeting app to help you keep track of your card’s annual fees and overall spending.
• Review your credit report regularly: Check your credit report at least every few months to catch any errors or issues early.
• Be strategic about applications: If you apply for a new card, time your application around a large planned purchase to meet the minimum spend requirement easily.

Frequently asked questions

The bottom line

While credit card churning might seem like a shortcut to free travel or cash back, it's a high-risk strategy that can quickly backfire. For most people, the potential rewards don't justify the risks to their credit score, financial health, and relationships with card issuers.

Instead, focus on using credit cards responsibly and strategically. Choose cards that align with your spending habits, pay your balance in full each month, and take advantage of your cards' perks. This approach may not lead to a sudden windfall of points, but it will contribute to your long-term financial health and allow you to enjoy meaningful rewards.