Credit card churning is the practice of signing up for new cards for the benefits and bonuses. Sometimes, people close and then open multiple credit card accounts to maximize the benefits they can get. Here, we go through what credit card churning is, how it works, and whether it is the right fit for you.
What is credit card churning?
When people churn credit cards, they frequently open new credit cards to collect sign-up or welcome bonuses. They also do it for benefits like cash back, travel points, or air miles. To get these bonuses or benefits, there are rules in place set by the credit card companies. For example, there may be a minimum spending requirement to get the bonus. Those who do this churning often close or downgrade their credit cards once they earn the bonuses. Many of the cards that offer bonuses charge an annual fee, which is usually waived for a certain time period. Churners typically cancel the cards before the annual fee kicks in.
Credit card churning is legal in Canada. However, credit card companies don’t like it. That’s why they sometimes have rules in place to limit or discourage the practice. Some credit card issuers set lifetime limits on bonuses for the same card. Some make it harder to open multiple credit cards during a certain time window. Others set limits on how often you can earn the same bonus in a set period of time, like 2 to 4 years.
How does credit card churning work?
Step 1: People will look for good sign-up offers and make note of the related conditions. For example, spending a set amount in a time window, say 2-3 months after signing up.
Step 2: If it seems like a good offer, they apply for the new credit card. This triggers a hard credit check, which shows up on your credit report.
Step 3: They would ensure to do what they need to do to meet any criteria to get the bonus.
Step 4: Collect the bonus. This could be in the form of points, miles, or cashback.
Step 5: Cancel or downgrade the card. Frequent credit card churners will do this before any annual fee is due.
Step 6: Move on to the next card and repeat. Frequent churners do this process multiple times.
Pros and cons of credit card churning
Pros of credit card churning
- You get high value from bonuses, points, or cashback.
- A quick way to get travel or cash rewards.
- You pay little or no fees, especially if you cancel before annual fees apply.
- Frequent churners are strategic about stacking rewards, tracking deadlines, and maximizing benefits.
Cons of credit card churning
- You get hard inquiries on your credit report. These stay on your report for up to 3 years.
- When you close accounts frequently, you have a shorter average account age on your credit report, which will lower your credit score.
- Opening multiple accounts in a short amount of time is frowned upon by credit bureaus.
- It can backfire and cost money if the criteria aren’t met.
Is credit card churning a good idea?
There are a few factors to keep in mind.
Credit card churning is not illegal. However, credit card companies don’t like it. They often have rules in place to try to limit this activity. For example, some Canadian credit card issuers limit how often you can earn a bonus, sometimes once per lifetime per card.
Applying for credit cards too frequently may make credit card issuers cautious. If they feel people are trying to churn, they may start declining more in the future. If you’re planning on building long-term credit, it might not be helpful to churn credit cards.
Keep in mind that minimum spend requirements may encourage overspending. However, if you use these cards for things you were gonna buy anyway, it may even out in the long run. If you’re new to budgeting or trying to rein in your spending, this might not be a good fit.
Of course, if you’re doing this, you need to pay off the balance in full every month. If you don’t, credit card interest charges will wipe out any reward benefits.
Would credit card churning work for me?
It might work for you if:
- You already have good credit and income
- You can always pay balances off in full before interest charges apply
- You’re organized and track due dates and fees
- You can actually use rewards strategically (e.g., travel redemptions make sense if you’re a frequent flier)
It might not work for you if:
- You’re thinking of applying for a long-term loan (like a mortgage) soon
- You need to build long-term credit
- You currently struggle with budgeting or bill tracking
- You tend to spend more when you have more cards
- You’re not up for taking the time to understand the intricacies and conditions of each card issuer’s rules
Key takeaways
Credit card churning can work for a small set of people. It’s something you can consider if you’re already financially disciplined and stable. It’s very important to stay organized and keep track of important dates. You would need to do it for multiple cards.
Credit card companies try to discourage this behaviour, but people who do this often have multiple cards open at a time. If you do try this, remember to pay your monthly balance in full, every month, on all the cards. Read the fine print carefully. If you’re trying to be better at managing your cash flow, this might not be a good idea till you’re financially stable.
There’s one thing for sure: Credit card churning is not a good idea if you’re currently dealing with debt. It’s a risky practice that can quickly get you into even deeper financial trouble. If you’d like help getting back control of your finances, contact one of our trained credit counsellors for advice. They can help you figure out which debt relief strategy could be the right fit for your specific situation.
