Intro to Credit Card Churning

I could talk about credit card churning for hours, literally. So I'm going to divide this topic into a few different posts. Consider this the introduction. Lets start with the What, Why and Who.

What is Credit Card Churning?:

Credit Card Churning is the process of repeatedly applying for credit cards to harvest the sign-up bonuses.

Why do people Churn?:

It depends on the individual but the main reason someone would churn credit cards is for the sign-up bonuses. For instance, the Chase Sapphire Preferred card offers (at the time of this post) $625 back after you spend $4,000 in 3 months. Depending upon your goals, you might churn for cash back, airline miles, or even just to build your credit score. 

Who?:

Okay so, realistically, it is not a good idea for just anyone to churn credit cards. For one thing, there is the inherent risk that you won't be able to pay off your bill each and every month. In some cases the interest and late payment fees can wipe out the sign-up bonus, or even cost you more than the sign-up bonus was worth. If there is one single golden rule to credit card churning it is this: PAY OFF YOUR ENTIRE BALANCE. EVERY. SINGLE. MONTH.

Other reasons that credit card churning might not be for you:

1. You're credit score is too low: You can't get approved for the cards with the best bonuses if your credit score is too low. For anyone with a credit score below 720, getting consistently approved can be difficult.
2. You are planning on applying for a home loan within the next two years: If you are planning to buy a home soon and will need a mortgage, churning credit cards is not a good idea. This is because the banks will see that you have recently opened a large number of credit cards and deem you to be a risky borrower. This can possibly lead to two bad outcomes:
1. You get outright denied for your loan, or
2. You pay a higher interest rate on your loan.
3. You already have a lot of debt: If you have lots of debt already (student loans, car payments, etc.) then it is a good idea to focus on paying those off first. As mentioned before, even one missed payment can wipe out the benefits of churning and since you already have lots of debt, it may be even more likely you will miss a payment.

So if you've read this far and still think churning is for you, we'll briefly go over the basics. On the surface, there is a very simple formula to churning:

Step 1: Apply for a card with a large sign-up bonus.

Step 2: Meet the minimum spend within the time limit (usually 3 months) by buying things you normally would. (Think groceries, gas, eating out at restaurants, etc.)

Step 3: Once the minimum spend is met, repeat steps 1 & 2.

Step 2 is particularly important. If you find yourself spending more than you normally would then STOP, churning is not yet for you. You should be 100% certain that you can meet the minimum spend on a credit card by purchasing things you were already going to purchase anyways. You absolutely do not want to be in a position where you are frivolously spending on things you don't need or wouldn't normally purchase. 

So at this point, you probably fall into one of two buckets: 

In bucket A are those who are not ready to churn. There is absolutely nothing wrong with this. When I first heard about churning, I too realized I was not ready. I had other expenses that needed to be taken care of first. Now that I am financially stable I can churn safely without having to worry about getting stuck in a credit card debt cycle. If it sounds like this describes you, I highly recommend starting out with one of the other money-making methods on this blog and eventually coming back to churning down the road.

In bucket B are those who are ready to churn. You are financially stable, have a good credit score, and aren't planning to apply for a home loan within the foreseeable future. If this describes you, then I extend an invitation to our more in-depth posts about churning. There we will discuss the strategies for maximizing your potential gains from churning. 

Thanks for reading,

Rybos