Are you the kind of person who loves to accumulate and use credit card rewards? If the answer is YES, you must have heard of the term, Credit Card Churning. Let us see what credit card churning is and how you can use it to your advantage. We shall also examine its demerits and know whether it is worth taking the risk.
What is credit card churning?
You must have come across credit card issuers offering enticing signup bonuses. These bonuses come with a rider that you have to spend a specific amount of money within a timeframe, usually 90 days after the issuance of the credit card. It implies that the more the number of such rewards credit cards you open, the higher will be your signup bonuses.
Credit card churning is the habit of opening and closing credit card accounts with the sole objective of earning signup bonuses. If you stick to one card, your signup bonus will be less. Hence, people indulging in credit card churning open multiple credit cards to maximize their rewards.
Credit card churning success tips
Pay the credit card dues in full every month on time
You will be eligible for the signup bonuses only if you use your credit card up to the stipulated amount and pay the entire bill as well. Hence, it is better to make it a point to clear the whole credit card bill every month before the due date. If you rake up huge balances on your credit card, you end up falling into the debt trap. Secondly, paying interest on your credit card balances reduces the benefits that accrue from it. Avoid late payments, as banks can charge you for the same. It can also prove a hindrance when you apply for more credit cards.
Do not go for more cards than you can afford
Yes, more credit cards make you eligible for higher signup bonuses. However, you have to clear the balances on time as well. It is advisable not to opt for more cards than you can afford because you might find the debts an insurmountable challenge to handle.
Check out annual fees waivers
Most of the rewards credit card issuers waive the yearly fee for the initial year. You might have to pay a renewal fee for the subsequent years. Some of these cards offer benefits such as a free stay in a specific hotel for renewing these cards. If the renewal fee is less than what the hotel charges you for a room for a night, you should opt for the renewal. Otherwise, it is better to close the card and open a new one.
Look out for attractive offers
Browse the internet and check out all the rewards cards offers available in your city. You could find a better deal than the one your bank is offering you now.
Keep track of your cards and spending
Maintain a clear record of all such cards you have and keep track of the expenses and payments. Missing a payment can result in the forfeiture of these rewards or bonuses.
Be aware of the credit card rules
Read the fine print to know the subtler aspects of credit card churning. Some credit cards allow cardholders to earn a bonus only once in a specific period. The rules might also limit the number of credit cards you open during the particular period. Secondly, opening multiple cards can bring down your credit score as each bank makes a hard inquiry on your credit history. To know more about credit card rules click here.
Do not indulge in availing cash advance facility or balance transfers
These signup bonuses are available only on your actual spending, and not on balance transfers and cash advances. Secondly, you have to pay interest on your cash advance amounts, as there is no interest-free grace period for cash advance facility. It also reduces the amount available with you for spending and earning rewards.
Does credit card churning affect your credit score?
Credit rating agencies look at aspects like your payment history, level of credit card debt, and the number of new cards you apply. Hence, credit card churning can affect your credit scores, as you keep on applying for new credit cards. However, there is also scope for improving your credit score, especially when you repay the entire credit card bills on time. It improves your payment history.
Is there any risk in credit card churning?
If you pay bills on time and know how to use your credit card wisely, there is a limited risk in credit card churning. The problems arise when you fail to make payments on time. It would help if you stayed away from credit card churning under the following circumstances.
Poor credit rating
If you do not possess a good credit rating, you should not try out credit card churning. It is better to rectify your credit history before attempting credit card churning.
Plan for a significant loan shortly
If you wish to invest in a home or buy a car soon and would like to go for a loan, you should not try out credit card churning as the increasing numbers of hard inquiries can pull down your credit score.
You do not spend the money to be eligible for the rewards
Such credit cards require you to spend a lot during the specified period to qualify for the rewards. If you do not have the resources to do so, it is better not to go for credit churning, as you might slip into a debt trap.
No experience with handling credit cards
Credit card churning is not for first-time credit card users. It is beneficial to only those people that have experience in dealing with credit cards regularly and making prompt payments every month.
Is it worth taking the risk?
If you are confident enough of being able to manage the additional load, you can go ahead with credit churning. However, you must ensure to follow the tips for successful credit card churning. Alternatively, if you are new to learning how to use credit cards, it is not worth taking the risk. You could end up deep in debt.