What Is Credit Card Churning?

One of the most enticing things about opening a new credit card is the sign-up bonus. Credit card issuers often give new cardholders a large sign-up bonus as an incentive to open a card. But, some cardholders use sign-up bonuses to rack up rewards with no intent of keeping the card in their wallet — this is called credit card churning. Credit card churning is a process where someone repeatedly opens and closes new credit cards to earn sign-up bonus rewards.

Credit card churners often close a credit card right before an annual fee is charged. They repeat this process again and again to continue to accumulate rewards across a variety of cards.

What is a sign-up bonus?

A credit card sign-up bonus is a card issuer’s incentive to get you to apply for a credit card. It’s sometimes called a welcome bonus or welcome offer.

Sign-up bonuses require you to spend a certain amount within the first few months of owning the card before you can get the bonus. Sign-up bonuses come in the form of cash, points or miles. Credit cards with higher sign-up bonuses often come with high spending requirements.

How does credit card churning affect your credit?

Each time you open a new card, your credit score can dip by about five to 10 points. Although this may not seem like a lot, your credit score is only one part of your financial profile. While credit card churning may not heavily affect your score, it can significantly impact how credit card issuers view you as a customer in the future.

Here are other ways that credit card churning may affect your credit:

Number of applications: Whenever you apply for a new credit card, a hard inquiry is generated. A hard inquiry is when a lender requests your credit reports before approving your application. It can stay on your credit report for up to two years and temporarily knock down your credit score by five to 10 points. Plus, when you apply for too many credit cards it raises a red flag to issuers. You could be less likely to be approved for credit in the future.

Payment history: Your payment history makes up 35% of your FICO Score and 41% of your VantageScore. Making on-time payments is extremely important to maintaining a good credit score. If you increase the number of credit cards in your wallet, it could be harder to keep track of due dates.

Tip

To keep track of multiple credit card due dates you can set up automatic payments or alerts to remind you to make payments on time. If your credit cards have different payment due dates, you can ask your credit card companies to adjust them to have the same date across cards.

Credit utilization ratio: Your credit utilization ratio makes up 30% of your credit score. A credit utilization ratio is how much credit you’re using in relation to how much credit you have. You should keep this number under 30% to maintain a good credit score. If you have multiple credit cards and pay your bills in full each month, this number is likely low. But, if you’re racking up large amounts of debt across credit cards to get sign-up bonuses, this number could be higher and your credit score could be affected.

Length of credit history: Opening many credit cards just to get the sign-up bonus and then closing the cards can hurt your credit score. Having many recent accounts will reduce the average length of your credit history, which makes up 15% of your credit score. It’s better to keep a card open and use it here and there than to close old cards.

How many credit cards should I have?

There’s no specific number of cards that you should have — the right number for you will depend on your financial situation and lifestyle. According to Experian, the average American has 3.84 credit cards.

How banks prevent credit card churning

Banks aren’t the biggest fans of credit card churning. While they’re happy to have new applicants, they want customers who will bank with them long-term rather than credit card churners. Banks are also more profitable when customers get a card, don’t use its benefits and pay interest and annual fees, which is the opposite of what credit card churners do.

Major issuers often put restrictions on earning sign-up bonuses to prevent credit card churning. They may prevent you from applying for the same cards over and over again. For example, American Express offers a welcome offer for most of their cards only once per person per lifetime. A bank may also prevent you from putting in too many applications. Chase’s 5/24 rule, where you can only open up to five personal cards over a 24-month period, is a well-known example of this.

Here are other notable issuer restrictions around credit card sign-up bonuses:

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Is credit card churning bad?

Credit card churning isn’t illegal — but it can negatively impact your credit, harm your chances of getting future cards and also harm other chances at credit. For example, if you’re looking to purchase a home, mortgage lenders don’t like to see lots of opened and closed accounts on your credit history.

If you have a history of getting into credit card debt, you should also avoid credit card churning. This could cause you to rack up credit card debt across many different cards, since you’ll often have to spend a lot to earn sign-up bonuses. Plus, you may find it difficult to keep track of payments on multiple cards.

How to maximize rewards without credit card churning

There are several other ways to maximize credit card rewards without credit card churning:

Get complimentary cards: Finding a combination of credit cards that fit your spending habits is the best way to maximize rewards.

Example

If you’re a frequent traveler, you may want to choose a card that offers high rewards on airline or hotel purchases. Travel cards also have other travel benefits, like lounge access, travel insurance and free checked bags. And if you prefer to earn cash back on everyday purchases like dining or groceries, you may choose a card with high rewards in those categories.

Get multiple cards from the same issuer: Some issuers allow you to move rewards between cards. You can also use the same online account, making your cards easier to track.

Example

Chase credit cards use the Chase Ultimate Rewards® program, which allows you to pool points from Chase cash back cards for premium travel redemptions. You can also get 25% to 50% more value for points when redeeming them for travel and transfer points 1:1 to airline and hotel partners. Plus, there’s other flexible redemption options like cash back, merchandise and gift cards.

Review all of your cardholder benefits: Make sure you’re taking advantage of all your card’s perks. Benefits like travel insurance, travel and purchase protections and free checked bags can save you significantly.