What is credit card churning?

Credit card churning — the process of opening and closing rewards credit cards to earn a series of welcome bonuses — isn’t for everyone. While it can pay huge dividends, the process requires top-notch organizational skills, in-depth understanding of application and bonus rules by each bank and good credit and money habits. 

Despite what you may have heard, churning is not necessarily a surefire path to debt, bankruptcy or a bad credit score. In fact, simply opening and closing multiple credit cards alone may not harm your score.

So what is credit card churning? And why would anyone attempt to open dozens of credit cards? Here’s a look at the positives and negatives of this practice.

How many credit cards should you have? There’s no one-size-fits-all but here’s what you should know. 

How credit card churning works

Credit card issuers routinely offer exciting welcome bonuses to attract new applicants. Offers on the best credit cards can be worth $1,000 or more if redeemed for maximum value.

While an average person might open one credit card a year — or one every few years — credit card churning involves opening multiple new cards in quick succession. This might mean opening a new credit card every month, depending on how quickly you can spend the amount required to earn the welcome bonus. This can provide hundreds of thousands of points and miles each year, redeemable for flights and hotel stays.

Credit card issuers have caught onto this play, however. Opening a credit card, earning the bonus and then putting the card in the back of your wallet (or even closing the account) doesn’t provide long-term customer value for the credit card company. Thus, the banks have created rules to crack down on churning. One example: the well-known Chase 5/24 rule. Chase will not approve you for a new credit card if you’ve opened five or more new credit card accounts from any issuer in the last 24 months. 

By understanding and following these rules, discussed in more detail below, it’s possible to open new credit cards to earn welcome bonuses that can be turned into travel rewards.

Pros and cons of credit card churning

Churning has both upsides and downsides, including the ability to affect your credit score and lead to debt. Here are the pros and cons of credit card churning.

Pros 

• Provides a steady flow of credit card rewards that can be used for travel.
• Can help you earn substantially more credit card points and miles than you could through daily spending.
• May boost your credit score by lowering your utilization if properly managed.

Cons

• Banks may close your accounts or ban you if you churn cards aggressively.
• You may be tempted to rack up credit card debt due to having more credit available.
• May negatively impact your credit score in various ways if not managed properly.

How can credit card churning affect your credit?

Churning can be complicated to track and can lead to disorganized finances. For example, churners need to track the account opening date, the deadline for earning the welcome bonus, the amount spent on the card, which cards to use for which purchases and many other factors. 

Trying to use and manage many cards at once can result in missing out on a bonus and potentially making a late payment, which can negatively affect your credit. And consistently opening new accounts can have other impacts on your credit as well.

Churning affects various factors that make up your FICO® Score, a commonly used scoring model for lending. For example, each time you apply for a card, you get a “hard inquiry” — meaning a bank is checking your credit to make a lending decision. You can’t remove hard inquiries from your credit report. Each hard inquiry or “hard pull” can ding your credit score by up to five points, and can affect your score for a year and stay on your credit reports for two years.

Opening up a lot of new accounts also can affect your length of credit history, which makes up 15% of your FICO Score. This takes into account various factors, including the ages of your oldest and newest accounts and the average age of all accounts. Adding multiple new accounts in a short time can lower these numbers, causing a dip in your score.

Your payment history makes up 35% of your FICO Score, so any late payments caused by trouble keeping track of cards and payment due dates could have a substantial negative effect on your score. (Keep in mind that other types of credit scores may assign different weights to these different factors.)

And if you open multiple credit cards and carry large balances on your accounts, that can negatively affect both the amounts owed and payment history elements of your score. These metrics account for 65% of your credit score.

But, owning multiple cards can have a positive effect on your credit score because the amounts you owe on revolving accounts make up 30% of your FICO Score. This factor — known as “credit utilization” — takes into account the percentage of available credit you’re using overall and on each individual card. The lower your utilization, the better. Each time you open a new card, your amount of available credit is increased which lowers your overall utilization, provided you don’t run up and carry large balances on your cards. While paying down your balances is one of the fastest ways to improve your credit score, opening another credit card can help you build credit and improve your score, as long as you use it responsibly.

Missed a payment or made it late? Here’s how long late payments can stay on your credit report.

How do banks implement measures to prevent churning?

Credit card churning isn’t profitable to credit card issuers, who want long-term customers. Frequent card use also boosts profits as banks earn swipe fees on each use.

Churners tend to open a card, use it frequently for anywhere from one to three months to earn the welcome bonus, then put it aside to move on to another new card and welcome bonus. In order to limit this activity, banks have instituted various rules on opening new cards and earning bonuses.

Many of these rules, such as the well-known Chase 5/24 rule, aren’t published by the banks. Cardholders generally learn about these rules by sharing and comparing their churning experiences.

Other rules, such as the American Express “once per lifetime rule” are published. Amex states that you may not be eligible for a bonus on a card if you have ever earned that bonus in the past. And Capital One only allows a cardholder to have two of its cards at any one time.

Banks know they can’t prevent churning entirely, but these rules slow down the process and help banks avoid losing money by doling out too many bonuses to customers who won’t stick with a card for the long term.

Why credit card churning is risky

Though the idea of earning millions of points and miles may sound alluring, it can be risky if you’re not meticulously organized and in a solid financial position. 

First, there are the risks to your credit score due to hard inquiries and other factors already mentioned. While churning alone won’t tank your credit, it can lead to risky behavior for cardholders who get tempted by available credit or have a hard time juggling accounts. 

If you’re interested in churning, checking your own credit and checking your credit score ahead of time may be a wise idea. Depending where you stand, you may want to focus on building your credit and good money habits before you consider churning. 

Credit card churning can be especially risky for anyone already carrying credit card debt. If you have balances you’re struggling to pay down, steer clear chasing bonuses for now and consider a balance transfer credit card. This may help you pay off your debt more quickly, potentially saving you hundreds of dollars in interest, which ultimately will cost you more than any card welcome bonus is worth. 

Credit card churning can be extremely valuable for those who know how to manage the rules and maximize the rewards they earn. However, it can create numerous issues for those who run up balances they can’t immediately pay off. Paying interest on credit card debt will negate the value of any rewards you earn, and a lower credit score from mismanaged churning can cause you to pay higher interest for auto loans, mortgages and other credit in the future.