Credit Card Churning: Making the Most of Bonus Offers
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What if you could earn hundreds of thousands of frequent flier miles without ever leaving the ground? It is possible. In fact, I have earned most of my miles this way by using a practice called credit card churning. This technique is considered somewhat controversial and is definitely not for everyone. Nevertheless, responsible credit card users have the potential to earn vast sums of valuable points and miles simply by giving banks the opportunity to earn their business. (See also: Best Travel Credit Cards)
What Is Credit Card Churning
Credit card churning is a term coined by hard-core travel rewards enthusiasts who discovered that certain banks allowed customers to receive the sign up bonus multiple times for a particular credit card. In the past, it was possible for customers to apply for and receive some airline affiliated cards every few months. With each new card, account holders qualified for a sign up bonus of 25,000 miles or more. Just like the game Monopoly, where players can be dealt a card that says “Bank error in your favor, collect $25,” credit card users were repeatedly receiving these bonuses despite written terms to the contrary. The banks eventually caught on to this practice and ended it, although it took them far longer than anyone thought it would. Cardholders kept their miles, but banks would no longer approve customers for the same card every few months. Today, the term credit card churning refers to the practice of receiving one sign up bonus from several different cards throughout the year. In most instances, customers can again receive a new sign up bonus from each particular card about 18 months after their last application.
An Example of How I Earn Credit Cards Sign Up Bonuses
Two years ago I was granted an American Airlines card that featured a sign up bonus of 35,000 miles. The first year’s annual fee was waived, and I canceled this unremarkable card the following year. This year, I applied for two new American Airlines credit cards, with a sign up bonus of 75,000 miles each. I have since been approved for the business version of that card, which offers not only another 50,000 miles, but a $150 statement credit and two day passes to their Admiral’s Club lounge.
Credit Card Churning and Your Credit Score
The benefits of credit card churning are clear. In this case, I earned a total of 200,000 AAdvantage miles, which is enough for two round trip award tickets to Europe in business class, conservatively worth $10,000. Yet skeptical readers and responsible credit card users should rightfully question the wisdom, if not the sanity of this practice. Most people have difficulty understanding how I can maintain a strong credit history. In response, I assure them that no one is more focused on keeping a high credit score than I am.
The way I practice credit card churning does not significantly impact my credit score, and it can even raise it in some cases. Throughout my churning, I have always kept my FICO score in the high 700s or low 800s. This is because there are only two aspects of your credit score that are affected by churning. These are your recent inquiries and your debt utilization ratio. Having too many recent inquiries does negatively impact your score, but the effect is temporary and minor. On the other hand, increasing the total amount of credit that you have been extended actually reduces your credit utilization ratio. This improves your score slightly as long as your debt remains the same. It is important to realize that both of these effects of credit card churning are minor in comparison to the practice of carrying little or no debt and paying your bills on time.
While it is likely that my credit score is sometimes a few points lower than it could be, experts will tell you that any score approaching 750 is considered excellent and will qualify borrowers for the most favorable mortgage rates. My experiences have confirmed this to the true, as I have always received the lowest advertised interest rate when I have purchased or refinanced my house. For example, when I refinanced my home this fall, the lender pulled my credit reports from all the major bureaus. My scores were all between 780 and 800, and I easily qualified for the record low rates being offered. Maintaining a credit score above 800 might offer you bragging rights, but it has no tangible benefit over having credit of 760 or above that is considered excellent. Clearly, my ability to be approved for new credit cards has never been diminished.
The Dangers of Credit Card Churning
I cannot say in strong enough terms that no one should interpret this article as a recommendation to apply for as many cards as possible. Churning works for me and others because we meet the minimum spending requirements for each sign up bonus while always paying our balances in full and on time. Much of what I know about this subject comes from reading about other churners in blogs and by participating in online forums. These are people who monitor their credit scores every day, and their experiences confirm my observations — that each new application barely affects our credit history as long as we carry little debt and pay our bills on time. Churners are unanimous in proclaiming that anyone who will use their cards to spend more money or to incur any debt should never consider this practice. In fact, any credit card user who carries even a small balance should only be concerned with paying it off and forget about applying for new cards.
Is This Practice Wrong?
Banks spend billions of dollars advertising their products on television and on the Internet. In addition, most people return home each day to find their mailboxes stuffed with new credit card offers. Clearly, we are not twisting the bank’s arm when we request a new credit card. At the same time, I actually try to give each bank a chance to earn my business when I receive its card. For example, earlier this year I received the Sapphire Preferred card from Chase and earned a sign up bonus of 50,000 Ultimate Rewards points. I discovered that it is an innovative and worthwhile product, and I continue to use it long after I have received my bonus points. Furthermore, every time I use this card, Chase is earning merchant fees as a result of my patronage. Finally, I know that credit cards are some of the bank’s most consistently profitable lines of products, and it is my impression that they consider me to be one of their better customers.
Go ahead and call me crazy if you want, and feel free not to follow my example. But if you are one of the select few who have always maintained a high credit score by consistently paying every credit card statement in full and on time, you might carefully consider this extreme-but-rewarding way to earn more points and miles.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.