What is Credit Card Churning and is it Worth it?

While many of us use credit cards for genuine reasons, some people exploit loopholes in the rewards system to get stuff for free or very cheaply, accumulating a whole bunch of credit cards along the way, and sometimes – when they’re not so lucky – get into debilitating debt.

What is Credit Card Churning?

Credit card churning is a method used by some credit card holders to accumulate massive amounts of miles and points which they redeem in exchange for travel rewards.

It usually works this way: you sign up for a credit card offering a huge sign up bonus spend the minimum amount stipulated by the card issuer, collect the bonus points and cancel the card, then repeat the whole process.

Simplified it looks something like this:

With many credit card companies offering attractive perks to new clients in a bid to win them over permanently (including waiving membership fees in the first year), it’s no wonder some people find the deal too attractive to pass up.

So dedicated are some churners that they end up with lots of free goodies like plane trips, hotels, unforgettable experiences, gift cards or just plain money simply by using the right combination of cards.

Credit card companies have caught onto churning strategies and are now taking steps to curb the habit.

 

American Express recently implemented “Once a Lifetime Policy”

American Express’ Once a Lifetime Policy” states that if you signed up for a particular card before, you won’t get the welcome bonus points when you sign-up for the same card again.

The terms for their American Express Gold Personal card, for example, read like this:

This offer is only available to new American Express® Gold Rewards Cardmembers. For current or former American Express®Gold Rewards Cardmembers, we may approve your application, but you will not be eligible for the welcome bonus. Offer subject to change.

I’ve looked at several American Express cards and their clauses run along the same lines, including business cards as you can see from their statement below:

To qualify for a Welcome Bonus of 40,000 points you must have at least $5,000 in net purchases posted to your account in your first 3 months of Card membership. Account must be in good standing. This offer is not applicable to holders of an existing American Express Small Business Card product. When we stop offering the Welcome Bonus, we reserve the right to accept applications but you will not be eligible for the Welcome Bonus.

What are the risks of credit churning?

Let’s just say you can get into a lot of financial trouble if you don’t play your cards right. Credit card churning requires a certain type of personality and near obsessiveness with for detail, for someone to get it right. 

Churners juggle several cards at the same time which is no mean feat. Remember you have to meet the minimum spending requirements for each card, keep track of any adjustments in the reward programs, and be on the lookout for new card offers – all this while making sure your payments are up to date for all the cards.

Of course you must be careful to be a good customer, and use your older cards every once in a while to keep up appearances, as you continue racking up bonuses on new cards.

Lack of a clear strategy will hurt you

If you don’t have a clear strategy you may fail to win reward points, or end up with a bunch of points you can’t do much with. This is a good case, as far as misfortunes go. I know some cases where people have allowed their credit card debts to spiral out of control because they got into it without a clear plan, or couldn’t curb the urge to buy impulsively. It’s one of the reason why I don’t deal with cards offering cashbacks.

My strategy for accumulating rewards

I don’t churn cards. I prefer signing up for all of American Express cards because they have lots of different cards that offer generous welcome sign-up points – you can read my blog on The Top 5 Best Travel Credit Cards for 2017 for more details on this. Although the cards that charge an annual fee offer the most generous points, if you do a cost/benefit analysis, it’s definitely worth getting these cards.

My strategy is to sign-up for the cards to get the welcome bonus, then refer my wife to sign-up for the cards as well. This way I get to benefit from the referral bonus courtesy of my wife, while she too receives her share of welcome bonus points – double dip. We tell friends and family about the card (card sells itself) and get referral bonus points for each approved referral. We then cancel the cards within the year so we don’t have to pay the annual fee the second year.

Bottom Line

The information I’ve presented here is by no means comprehensive, so make sure you read the Terms and Conditions for every credit card before signing up. This will help you gain a full understanding of your responsibilities in the agreement. I would also encourage you to do your own research so as to get the best deal available.  

Meanwhile, make sure you sign-up to my newsletter for more information to help you through your travel hacking journey.