Credit card rewards are a tantalizing bonus to signing up for and using a new card. This leads to a serious issue if you are overly aggressive in chasing these rewards. Credit card churning is the process of signing up for as many credit cards as possible, within a short timeframe, to collect the sign on bonuses and rewards.
This process is possible because of the competitive nature of the companies issuing the cards. They will offer you very attractive signup rewards that only need a couple months of spending to fully take effect. Once those rewards are collected, most churners will cancel the card and move on to greener pastures.
Churn and Burn
The process of churning credit cards can be very damaging to a healthy credit score in a few ways. The worst one is the act of juggling multiple cards at once to try and maximize the rewards in a short amount of time. You may be moving balances from card to card or paying them all, but the danger lies with making the mistake of missing payments.
The second mistake that can affect your credit is applying for multiple accounts and opening them one, right after the other. Each of these can ding your credit, but also show a huge increase in available balance. This will really be harmful if you plan a major purchase like a home or car in the near future.
The third credit killer is the process of cancelling the cards once the rewards have been claimed. The reason folks do this is to apply for a similar card later down the line and collect the signupnbonus again. The problem is that your credit score is based on length of credit history, and this shows a lot of short time cards and cancelled lines.
Addicted to Rewards
We know rewards are addictive, and you want to get as many as humanly possible in a short amount of time, but if you truly value your credit score, you'll want to stay away from the dangerous game of credit card churning. Earning free trips or maximizing your points may seem easy at first, but if you make a mistake, you may be in a large debt hole that is tough to escape.
Use caution if you ever attempt anything like this. While it is possible to pull the process off successfully, we don't recommend it. Shop for a card that gives you the rewards you need and try to stick with it long term, this will lead to a healthier credit score.
Don't Hurt Your Future
Our credit report says a lot about us, and credit card churning says that we use and close a ton of credit card accounts just to bleed the rewards out of the system. The dangers of missed payments, too many closed accounts, and constant opening of accounts all lead to a dubious mark on your credit. You might want to think twice before deciding that a possible free hotel stay or airfare is worth this level of danger.