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Credit card churning is a term often coined to describe people who recycle their credit cards in order to take advantage of credit card welcome bonuses. While there is a very good chance that this is the first you’ve heard of it, you aren’t alone. The average person probably has no idea that they can significantly benefit from regularly applying for new credit cards. However, just as there are advantages, there are also several drawbacks to credit card churning.

What Is Credit Card Churning?

Essentially, credit card churning is when you sign up for multiple credit cards for the purpose of getting the sign-up bonuses for these cards. Generally, people who practice credit card churning will use the card until they’ve gained all the welcome bonuses. After that, they’ll either cancel the card or keep it until the first year free offer has expired (a sign-up bonus many credit card companies offer). Another tactic often employed by the most seasoned of churners is to reapply for the same card after they’ve cancelled their first one, in order to get the sign-up bonus a second time.

How Does Credit Card Churning Work?

Credit card churning can take a lot of time, money and organization. In order to actually reap the benefits that churning has to offer, you’ll need to devote time each day to the practice and be able to keep track of the details of each credit card you applied for. Here are a few of the most important things you need to know about credit card churning:

  • First you’ll need to be pre-approved credit card or find a credit card that offers a good points system and a sign up bonus.
  • Often these cards also offer even more bonus points for reaching a certain minimum spend. Typically you’ll need to charge a specific amount within the first 30-90 days.
  • Once you’ve received your sign up bonus and minimum spend bonus you have two options: cancel the card or keep using it to accumulate more points.
  • Keep in mind that applying for and cancelling dozen of credit cards a year could trigger a red flag for some banks. This may result in rejections for future credit cards you apply for.
  • But, if you don’t cancel your card you’ll need to make sure you keep a close eye on it so that a simple credit mistake doesn’t work against the bonuses you received.
  • Finally always make sure you fully understand how to use each of your cards. For example, some cards produce more points when used to make specific purchases liked gas or groceries.

The churners themselves are very secretive about their strategies. It is feared that the more people get involved in credit card churning, the more it will cause credit card companies to take notice and reduce or even eliminate these bonus perks.

Interested in more information on credit card debt? Read this article.

Where To Find Credit Card Churning In Canada

For those looking to get into churning or for those who are simply curious about the topic, there are several online communities that offer information, tips and tricks on how to get started. Keep in mind though that while some churners are willing to share their experiences some are not. Often churners are afraid that credit card companies may start to catch on.

That being said there are a few online communities that you might want to check out. Reddit, Red Flag Deals and Great Canadian Rebates all have forums and discussions where churners share their experiences, new bonuses to look out for and even advice on how to make the most out of a churn.

Although credit card churning is a relatively new and interesting way to take advantage of credit card companies’ bonuses and perks, you should still be very cautious.

Benefits Of Credit Card Churning

  • Earn High Bonuses – Those who practice credit card churning are able to earn high bonuses that could take more than a year to earn, depending on their spending habits. With credit card churning you can earn thousands of points within just a few months due the bonuses offered.
  • More Value For Your Money – Often credit card annual fees make credit cards less valueable for those who don’t spend alot. For example, inorder to breakeven on a credit card with an annual fee of $120, you may need to first spend $10,000 in order to gain enough points to offset that expense. Only afte you breakevwn will your rewards be pure profit. But with certain credit card offers, you’ll be able to maximize your rewards by getting the first year annual fee waived.
  • There’s No Commitment – With credit card churning, you don’t have to worry about the smaller details of the card such, the categories you earn points in, the insurance benefits and other perks. Considering the welcome bonus is the main goal, you can stop using the card once you’ve redeemed all your welcome bonus points.

The Dangers of Credit Card Churning

  • Can Hurt Your Credit – Here’s the bottom line, while credit card churning can provide you with a significant amount of “free” money, flights and bonuses, it is still very risky and could potentially put your credit at risk. Unfortunately, every credit card you apply for will result in a hard inquiry, which can hurt your credit. Moreover, everytime you cancel your credit card for a new one, that too can affect your credit.
  • Debt Accumulation – Usually credit cards with welcome bonuses will require you to spend a certain amount of money before awarding you your bonus points. For example, the American Cobalt credit card rewards users 2,500 (up to $25 in value) each month for a year if they spend $500 each billing cycle. This can lead to a lot of debt, especially if you’re trying to meet the spend limit of multiple credit cards.
  • Credit Card Restrictions – Some banks have placed certain measures to prevent people from churning credit cards. While some banks have created welcome bonuses that take a year to earn, others have put red flags on those whose credit file show credit card churning behaviour.

How Can Churning Affect Your Credit Score

As previously mentioned, credit card churning can negatively impact your credit score. To better illustrate how credit card churning can affect your credit score, we’ve broken down the 5 factors used to calculate your personal credit score.

The History Of Your Payments (~35%)

Your payment history accounts for approximately 35% of your credit score. As such, missed or late payments can have a serious effect on your credit score. With credit card churning, you’ll be increasing your risk of missing payments, especially if you have multiple credit cards you’re trying to churn. Moreover, potential new lenders want to see that you can responsibly use credit, so if you have poor payment history, they’ll be less likely to approve you for a new credit card, which will affect your ability to churn credit cards.

The Amount Of Debt You Carry (~30%)

This factor is known as the credit utilization ratio and refers to the amount of debt you’re carrying compared to the amount of credit you have available to you. For example, if you have 1 credit card with a balance of $1,000 and a credit limit of $5,000, your credit utilization ratio would be 20%. In general, it is recommended that you keep your credit utilization ratio below 30% to positively affect your credit. Given that, churning credit cards can significantly impact your credit if you start maxing out your credit cards or start carrying a high amount of debt in order to reach the minimum spend limit some cards have to earn the bonus rewards. Unfortunately, while increasing your spending, you’ll also be increasing your credit utilization ratio which can negatively impact your credit score.

How Long Have Your Had Your Credit Accounts Open For (~15%)

The age of your credit accounts can also affect your credit score. Typically it accounts for 15% of your total credit score. As such, the longer you’ve been responsibly using a credit account, the more positively it affects your credit. But with credit card churning, you’ll be decreasing the average age of your credit by opening and closing multiple accounts.

TypeS Of Credit Being Used (~10%)

Another aspect of your credit score is the types of credit you use. Having a good variety of different types of credit accounts is important to a healthy credit score. However, with credit card churning, credit cards are only one type of credit account you’re opening, which doesn’t help diversify the credit accounts you have.

Applications For New Credit (~10%)

Every time you apply for a new credit card your creditors will perform a credit check, too many credit checks in a short amount of time is not good for your credit score.

Click here for information on how credit cards affect your credit score.

Bottom Line

It is probably quite obvious that credit card churning has its undeniable pros and cons.  If you have a sharp eye for certain deals and a close-to obsessive strength of mind to never pay more than is necessary, then, you may be intrigued by this secretive and risky venture. But be warned, churning is no sure-fire way to get ahead financially. It is a risky and potentially credit-score damaging undertaking.

Caitlin Wood avatar on Loans Canada
Caitlin Wood

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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