The High-Risk, High-Reward World of Credit Card Churning

For the first 26 years of my life, I had exactly one credit card. I figured that was all I needed. As long as I paid the balance in full, I would build credit and have a backup way to pay for emergency expenses. That all changed after I stumbled across the story of a young woman on a financial forum who had used credit cards to travel the world for a fraction of the cost, all without spending more than she would have had she not been chasing credit card rewards.

I was blown away. Who wouldn’t want to travel the world on the cheap? That’s when I entered the murky, competitive, high-energy world of credit card churning. While I am nowhere near ready to open up 20 cards a month like some people, I have now done my fair share of churning (and taken some lumps along the way). I’ll show you how credit card churning can be lucrative, but also carries some risks. But first, let’s define what “churning” is:

What Is Credit Card Churning?

Churning can be thought of as a series of steps:

Identify credit cards that are offering seductive signup bonuses.
Open up as many of the cards as you can.
Spend the minimum amount required to activate the bonuses.
Cancel the cards.
Rinse and repeat.

By doing this over and over again, churners can accumulate huge amounts of credit card rewards, airline miles, hotel points, or whatever other bonuses the cards provide. Some users have been known to open many cards per month with the goal of maximizing their bonuses.

Pros of Credit Card Churning

A quick Google search will reveal some truly impressive credit card churning success stories, such as this middle-class couple who took $195,000 worth of vacations over a few years after spending only $14,000 on their cards.

The logic behind racking up credit card rewards is simple: You’re going to spend money anyway, why not get rewarded for it? Churning basically takes that strategy to its extreme.

For many people, this works out swimmingly. They’re able to pay their cards in full each month so that they avoid onerous interest payments on their debt. They accumulate rewards points at a much faster rate than they could otherwise if they were making their purchases in cash or by using a trusty, years-old credit card. While even old credit cards will pay out rewards, but the real juicy bonuses can only be realized by opening a new card.

Some people even do all of this and still manage to maintain a high credit score at the same time. While opening new lines of credit can ding your credit score temporarily, the high ceiling of all those combined additional credit limits can lower your credit utilization ratio if you’re paying down balances promptly.

There’s also the rush of beating “The Man.” This notion is not insignificant. Some people take a “David vs. Goliath” mindset when it comes to credit card churning. They feel like many credit card companies are unethical in the way they make money off those who can’t make their payments. They see churning as a small way of sticking it to The Man and beating the big guys at their own game.

Cons of Credit Card Churning

However, you can get burned by churning, too: If you’re overzealous, you can dig yourself quite a hole.

Most of these credit cards carry interest rates of at least 16%, and they only go up from there — in some cases as high as 30%. If you charge $3,000 to a card and find yourself in a position where you’re unable to pay it off right away, you’ll be kicking yourself. Carrying that balance at a 30% APR for one year means you’ll owe the credit card company an additional $900 in interest. Adding insult to injury, if you fall behind on your payments, your credit will take a big nosedive.

You also might find that you have to shift into a “spending mindset” in order to meet all the minimums. It’s easy to see how this shift can undermine your whole reason for opening new cards. If you find yourself shopping for things you never would have bought if you weren’t trying to meet a signup bonus, you’re doing it all wrong.

Another thing to consider is what your near-term financial goals are. If you’re looking to buy a house, you’ll want to avoid churning. Mortgage lenders are notoriously wary of buyers who have many opened and closed credit accounts.

Furthermore, it’s important to keep in mind that the credit card companies are not dumb. If they issue enough cards, a certain percentage of the card owners will get into debt and owe big bucks back to the bank. The proof is in the alarming amount of outstanding credit card debt in America: $1 trillion as of April. Everyone thinks they’re going to beat the banks at their own game, but the numbers tell a different, sobering story.

Finally, churning requires vigilance. You have to stay on top of the ever-changing rules of the game. Some banks and card issuers have been cracking down on churning, as the tactic isn’t great for their bottom line.

For instance, American Express has a “once-per-lifetime” rule. This means that you can only get one signup bonus per product per lifetime. Similarly, Chase has implemented what is called the “5/24” rule. This means that you can’t open more than five Chase cards in two years (24 months). No matter how good your credit is, if you’ve reached your two-year limit, you will be denied. Since Chase notoriously offers cards with very high rewards, this issue is vexing for churners.

I recently bumped up against the 5/24 rule myself. Not because I am such an active churner, but because I didn’t do my due diligence over the past couple years. I found out the hard way that if you become an authorized user on someone else’s credit card, that counts as opening a new card. D’oh.

The Ideal Credit Card Churner Has…

Discipline: It takes concerted effort to pay your cards in full each month. If you have a history of late payments, churning will end up being burdensome instead of beneficial.

A Love of Travel: Credit card rewards can take many forms, but the churning gurus will point out that “using points for travel is smarter from a financial perspective.” For whatever reason, you tend to get the best deals when you redeem rewards for travel. If you only fly once a year and you never stay in hotels, the hassle and risks of churning may not be worth it.

Excellent Credit: You won’t be able to get approved for the cards with the best signup bonuses unless you have very good credit. And if you can’t get the top reward offers, there’s little incentive to churn through new cards.

Great Organizational Skills: It’s important to keep detailed track of what credit cards you have open, which you recently closed, and when the spending deadlines are. You can also ruin a perfect churn if you forget to cancel a card and get hit with a hefty annual fee. These fees can be anywhere from $69 to $550. If you aren’t a spreadsheet junkie, churning might not be for you.

Being organized also helps you to pounce on deals before they go away. I personally like to bookmark pages that maintain updated lists of quality credit cards, and especially travel cards. That way, I can do a quick perusal to see if there’s a new card that’s a good fit for me right when I open my browser.

Related: Why I Pay My Credit Card Bill More Than Once a Month

Big Purchases on the Horizon: As discussed previously, churning requires a “spend money to make money” mindset. If you aren’t a big spender, you’ll struggle to meet the requirements, and the whole issue could easily become a source of stress or even financial disaster. On the other hand, if you’re already planning to make some big retail purchases — such as a vacation, or new appliances — it could make a lot of sense to put those purchases on a new credit card so you can quickly and easily meet the signup bonus spending requirements.

Summing Up

Everyone loves a good game. There’s a reason I always see at least five people playing Candy Crush on my morning subway commute in New York. There’s something inherently satisfying in overcoming challenges and accumulating “points,” no matter what form they come in.

If you play the churning game right, you can reap major benefits. But, unlike with Candy Crush, there are severe consequences for messing up. So, as you keep an eye out for those great credit card bonuses, always remember that there’s no such thing as a free lunch.

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