How to Churn Credit Cards for Rewards

Credit card churning is a strategy to earn rewards by systematically opening new credit card accounts, meeting spending requirements, and often closing or downgrading them. This maximizes welcome bonuses and promotional offers from card issuers, providing value as cash back, travel points, or airline miles. The goal is to gain these benefits without incurring substantial costs like interest or excessive annual fees. This requires careful planning and disciplined financial management.

Key Elements of Credit Card Churning

A primary incentive is the sign-up bonus, offered to new cardholders upon meeting a minimum spending requirement within a set timeframe. These bonuses vary, from hundreds of dollars in cash back to tens of thousands of points or miles redeemable for travel or other perks.

Annual fees are charged yearly for holding a card, especially those with premium benefits. These fees can range from under $100 to several hundred dollars, requiring an assessment of whether the card’s benefits outweigh its cost.

Rewards, such as cash back, travel points, or airline miles, should align with financial objectives. Cash back offers direct monetary value, while points and miles provide greater redemption value, especially for travel. Evaluate the welcome bonus value against annual fees; a $500 bonus might justify a $95 fee, but higher fees require more substantial rewards.

A strong credit score and responsible credit history are foundational for churning. Lenders assess creditworthiness based on payment history (35% of a FICO score) and amounts owed, including credit utilization (30%).

Credit utilization is the percentage of available credit used; maintaining this below 30% is advisable. Length of credit history (15%) and new credit (10%) are also considered. Each new application results in a hard inquiry, which can temporarily lower a score and remains on the report for up to two years.

Issuers have specific rules affecting eligibility for new accounts and welcome bonuses. For example, Chase’s “5/24 rule” restricts approvals if five or more credit cards have been opened in the past 24 months. Other issuers may limit welcome bonuses to “once per lifetime” for a card product. Awareness of these policies is important for strategizing applications and avoiding denials.

Strategic Application and Spending

Applying for new credit cards for churning requires a methodical approach to optimize approvals and reward acquisition. Spacing out applications is recommended to avoid appearing as a high-risk borrower to credit card issuers, which can lead to denials. Applying for too many cards in a short period can also result in multiple hard inquiries on your credit report, impacting your credit score.

Upon approval, meeting the minimum spending requirement to unlock the sign-up bonus is the next step. These requirements range from $500 to several thousand dollars, often needing to be met within three months.

A practical strategy involves directing regular household expenses, such as groceries, utilities, and gas, to the new card. For larger spending requirements, time an application before a significant purchase, like home repairs or insurance premiums. Prepaying bills, such as annual subscriptions or property taxes, can also contribute to meeting the spending threshold.

Other methods for reaching spending targets include offering to pay for group expenses and having friends or family reimburse you, or purchasing gift cards for stores you frequent. However, purchasing gift cards should be done cautiously, as some issuers may not count them towards minimum spending, or they could trigger fraud alerts. Utilizing third-party payment services for expenses that cannot be paid by credit card, such as rent, can also be an option, though these often involve a processing fee.

Throughout this process, responsible spending and avoiding debt are important. The goal of churning is to earn rewards, not to incur interest charges, which can quickly negate the value of any bonuses received. Credit card interest rates can be high, and carrying a balance means the cost of interest will likely outweigh the value of points or cash back. Spending only what can be paid off in full each month ensures that the strategy remains financially beneficial.

Managing Your Credit Card Portfolio

Effective management of a credit card portfolio is important for sustained success in churning and maintaining financial health. A tracking system is recommended to monitor various details for each card. This includes application dates, approval dates, the deadline for meeting minimum spending requirements, and annual fee due dates. Utilizing a spreadsheet or a dedicated financial tracking application can help organize this information and ensure no deadlines are missed.

Paying bills on time and in full is an important practice. Consistent on-time payments contribute significantly to a strong credit history and prevent the accumulation of interest charges. Automating payments can help ensure that minimum payments or full balances are remitted by the due date, avoiding late fees and negative marks on your credit report. This discipline helps preserve the positive impact on your credit score from managing multiple accounts responsibly.

Strategic handling of annual fees is another important aspect of portfolio management. Many cards offer a waiver of the annual fee for the first year, but after that, the fee is charged on the account anniversary. Before an annual fee posts, cardholders have several options: canceling the card, downgrading it to a no-annual-fee version, or seeking a retention offer from the issuer. A retention offer might be a statement credit or bonus points to incentivize keeping the card open for another year.

Canceling a card, particularly an older one, can impact the average age of your credit accounts and potentially increase your credit utilization ratio if you carry balances on other cards. These factors can temporarily lower your credit score.

If a card has a low or no annual fee option, downgrading can preserve the credit line and its age while avoiding the fee. Monitoring your credit reports regularly for accuracy and observing any changes to your credit score resulting from churning activities is important. This vigilance allows for prompt identification and resolution of discrepancies, ensuring your financial profile remains accurate.