Credit Card Churning and Why It's Not Worth It
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If you know about credit card rewards, you may have heard about the wild things people do to accumulate them. One of these tricks is called churning, where people sign up for dozens of credit cards just to get the sign up bonuses. Is it worth it? Most likely the answer for you would be no. Here's why.
Your Credit Score Will Take a Hit
Each credit card that you apply for is a hard inquiry. That makes lenders suspicious and will lower your credit score. You never know when your score might affect you that you weren't prepared for. If you have to rent an apartment, buy a car, or get insurance earlier than expected, all those rewards you got can't help a dime. (See also: Surprising Ways Bad Credit Can Hurt You)
You Can End Up Paying Interest for Your Rewards
All the bonuses come with a condition: that you spend a certain amount of money within a specific time frame. You might be tempted to go on a shopping spree to fulfill those requirements, and end up biting off more than you can chew. If you leave a balance and pay interest, all those rewards would never cover that cost.
You Can End Up Paying a Lot of Annual Fees
The more rewards a card offers, the more likely there's an annual fee. Many cards might waive the first year, but then the second year rolls around and you'll be automatically charged the fee.
A Lot of Points Might Go to Waste
Not all cards offer the same type of travel rewards. Different cards have different relationships with various airlines and hotels. You might end up wasting a lot of points if you can't get all of them to one airline to make the ticket purchase or hotel stay. Also, different airlines have different conditions for using points for travel -- there could be blackout dates or limited award seats. You might find that the dream vacation you were hoping to land for free isn't even available, regardless of the number of points you have.
There Are New Rules Designed to Curb Churning
Issuers have recently implemented new rules on sign up bonuses, that blocks people who had previously already gotten a bonus from them from getting them again. Signing up, cashing in, cancelling, and then signing up again is no longer an option. That means that the amount of rewards you can get have dropped significantly, and you might end up getting a credit card where you don't qualify for the sign up bonus.
What Are You Going to Do With All Those Cards?
Cancelling cards is going to ding your credit, so what are you going to do with all those cards after you've cashed out the bonuses?
The best way to earn rewards is through everyday spending -- go ahead and sign up for the best travel rewards card, use it on the spending that you would normally do, and with some patience, you will get your dream vacation.