Travel for Free with Credit Card Churning

When we were taught how to properly use credit cards, not many of us learned about credit card churning.

Credit card companies are in an arms race to add customers, offering incredible sign up bonuses after you spend enough money. Some bonuses are over a thousand dollars in value.

A growing number of credit card spenders known as “churners” are capitalizing on this. Should you join them?

What is Credit Card Churning

Credit card churning is simple in practice. You find credit cards that offer rewards you are interested in, such as airline miles or cash. Once you spend enough money to qualify for the bonus miles or cash, you then stop using the card and cancel them before paying any annual fees.

Some churners are so dedicated that they’re able to get lots of deals, including flights, hotels, and cash, by using the right cards. Others have been able to make a living off of it, such as The Points Guy.

While churning is easy money, there are several considerations you should make to ensure that it’s right for you.

How Does Churning Effect Your Credit?

One of the largest risks with credit card churning is the impact to your credit. This is because your credit score is partly determined by the number of inquiries and average age of credit. As you open more cards, your number of inquiries and credit age both increase. Many churners will actually open several cards within a 30 day window to activate cards before it impacts their credit.

Churning can also harm your credit if you forget to make a payment. Every time you add a new card, make sure you immediately set the card up for autopay. This is an easy thing to forget, and doing so can dramatically harm your credit.

Finally, closing cards can harm your credit by lowering your average credit age, as well as your available credit. Part of your score is calculated by comparing the credit you’re using compared to your credit available. As you lower your credit available, your score will be impacted if you continue spending the same amount of money.

With that said, churning can also help with your credit score. Remember how your score is calculated by the credit you’re using? Well let’s break down 2 scenarios:

1. You spend $2,000 per month, with a credit limit of $5,000
2. You spend $2,000 per month, with a credit limit of $100,000

You’re spending the same money in both scenarios. In Scenario 1, you’re spending 40% of your available credit. In Scenario 2, you’re spending 2% if you’re credit. According to lenders, Scenario #2 is a safer client, since they don’t “need” the extra money.

Therefore, your credit score will benefit over time if you increase your available credit while spending the same money.

Why Shouldn’t You Churn?

Aside from your credit score, there are other reasons why you should not churn credit cards. If you’re planing to buy a home, any credit applications could lower your score and increase your mortgage rates.

If you have a history of going into credit card debt, you should also avoid churning. Interest rates with credit cards can be as high as 20% – any bonus you receive will be wiped out by your interest payments. In fact, this is what credit card issuers are counting on.

The Bottom Line

Credit card churning allows you to be frugal while enjoying travel. You’ll get free flights, hotels, and cash. With that said, you need to have the right mindset to manage them appropriately. Make sure you make your payments on time and in full, and you’ll have a lot of free benefits to take advantage of.

Save that difference you would have spent on travel based on your hierarchy of savings. Doing so will ensure you grow your net worth even faster.