Credit card churning is a unique strategy in which individuals attempt to maximize credit card signup bonuses and other credit card related rewards through opening and closing multiple credit cards over time. This guide will explain how to execute a credit card churning strategy, explain the risks and provide some specific examples based on the author’s personal situation.
What is credit card churning?
Credit card churning is the process of opening multiple credit cards on an ongoing basis for the purposes of maximizing signup bonuses. The process involves opening a credit card at the time of a major signup bonus offer, spending the necessary amount on the card to obtain the bonus, then closing the account. Because of the growth of the credit card industry in recent decades, credit card companies have increased their offers to draw new customers. These signup offers typically include things like cash back, rewards points that can be redeemed for a wide range of products and services, hotel points, airline miles and more.
For those of us that seek to eek out extra gains in personal finance, credit card churning has become a somewhat popular and very effective strategy for securing free travel, extra cash rewards or other reward points that can be used for other things. If done in an organized fashion with discipline, credit card churning can be extremely effective at getting more out of the spending you already plan to do.
Does credit card churning hurt your credit?
Credit card applications (required to open new credit card accounts) can lower your credit score by a few points. A credit card application is a “hard inquiry.” Hard inquiries can account for a small percentage of your overall credit score (many say 10 percent). The inquiries remain on your credit report for two years, but typically only affect your score for one year. As time passes, the impact on your score typically declines.
There are other factors to consider regarding your credit as well. The utilization ratio refers to the balance you’re carrying with respect to the amount of credit you have. Opening an additional credit card account can sometimes have a positive impact in the sense that it lowers your overall utilization ratio. Additionally, if you open new accounts, it can lower the average age of your credit accounts. Having a lower average age on your credit accounts can have a negative impact on your credit score. The reverse scenarios also apply. When you close a new credit card account, it might make the average age go up which is a positive. And if you close a credit card account, it might increase your overall utilization ratio. These areas can be partially mitigated by keeping a main credit card that you’ve had for a while open (don’t include it in the churning process), and always maintain zero balances on your credit cards so that utilization ratio is irrelevant. On that note, if you are carrying credit card debt, credit card churning really shouldn’t be your focus. Instead, focus on getting out of debt.
Overall, if you have a great credit score and a long credit history, the credit card churning process shouldn’t impact you too much. You can also choose to do a milder version of credit card churning if your credit is a concern. Again, if you have bad credit, cleaning up your financial picture is probably a better area of focus rather than credit card churning for rewards and airline miles.
Lastly, if you plan to apply for a mortgage in the next couple years, it’s probably best to put off any churning process and do everything possible to maximize your credit score until you have a mortgage approved and secured.
What is the 5/24 credit card rule?
If you research the credit card churning topic, you’ll likely stumble upon the 5/24 rule. This refers to a rule created by Chase in that they would not approve new credit cards if you have opened 5 or more credit cards in the previous 24 months. While this rule is specific to Chase, other issuing banks have other criteria they use to attempt to dissuade extreme credit card churners. For instance, the Marriott Rewards card often comes with some significant signup bonuses. You are not eligible for this card if you’ve received the signup bonus within the previous two years. This is not unusual for many of these cards.
So, in general, it’s a good idea to limit yourself to five credit cards every two years and to spread these cards around various issuing banks and specific rewards companies (e.g. Marriott, Delta, etc.). With so many options available, this isn’t very hard to do.
Moreover, some churners get creative here by utilizing the spouse’s credit history and spouse’s credit cards. A churning couple can pursue up to ten cards every two years by splitting them up. Of course this will introduce credit management for both individuals, and the rewards points will be split across two individuals (think two Marriott Rewards accounts rather than all points being consolidated into one).
Credit card churning risks
The main risk with credit card churning is that it leads to overspending. If attempting to maximize credit rewards leads you to spending more money on your credit cards, then you need to just stop. Your biggest asset in personal finance is living below your means and saving your money. This is the engine to fuel investing and wealth generation. If you’re disciplined with your spending, and you’ve demonstrated over a decent amount of time that you can manage a budget, then you can consider credit card churning. If you haven’t mastered budgeting and managing your spending yet, then credit card churning is not for you.
Secondly, managing a large number of credit cards requires being organized. If you’re not organized, you can lead to accumulating a large number of annual fees, and if you’re not organized, you can be late on payments incurring late fees and interest. The goal in credit card churning is to maximize cards with no annual fees or find cards that waive the annual fee for the first year (then cancel the card before the second year begins). Keep a spreadsheet of each credit card. Log the date that the account was opened, and the date each month when the payment is due. Use this spreadsheet continually throughout your churning journey.
Do not carry a balance on any credit card. Interest and late fees will quickly cost you more than the bonuses you’re receiving for opening the card. Do not carry debt.
Credit card churning can be time consuming. For high income earners who can live large easily, this might seem like a silly exercise. For those of us looking for small gains and ways to fund travel experiences and other pursuits, the effort is justified. Don’t start the process, however, if you aren’t willing to put in the time to stay organized and stay on top of everything.
Lastly, there’s always a risk of being flagged as a credit card churner by various companies. This might result in getting banned as a customer or not being able to open accounts from this issuing bank indefinitely. There is little written policy to this effect, but just be aware that this is always a possibility especially if you push hard as a churner.
Credit card churning strategy
Because of the variety of benefits and offers out there today, your specific strategy will likely differ, but here are some tips as you map out your own credit card churning strategy:
Avoid annual fees where possible, but some might be worth it. For me, I keep my standard green American Express card since I’ve had it open for more than a decade. It’s my oldest account, and I use American Express’s membership rewards points as my default card behind other priorities. Similarly I also keep my American Express Blue card because it pays 6% cash back on groceries. We have a big family and spend quite a bit on groceries, so this cash back every year on this spending category more than pays for the $95 annual fee.
Spread out the cards between you and your spouse. This can help you avoid the 5/24 rule, plus it can help you avoid getting flagged as a churner (if you are concerned about this risk). Also, you can consider doubling up on a specific offer with your spouse if you have a specific goal in mind. For instance, if you have a trip you want to take where you want to book a number of nights at a high-end Marriott hotel, you might open a new Marriott Rewards card for both you and your spouse at the same time in order to get two times the signup bonus. Obviously make sure your normal spending is sufficient to hit the minimum spend associated with the signup bonus on both cards.
If you’re new to churning, consider taking it relatively easy the first year or two. There’s no need to go at this at a maximum pace of five cards per two years right away. Perhaps just find a new credit card bonus you want to take advantage of, signup for the card, hit the minimum spend needed to obtain the bonus, cancel the account, then go back to your typical spending behavior and credit card. Then, maybe next year, do it again. This can be as simple as you want it to be, or as aggressive as you want it to be. I’ve been doing this casually for a few years now, and my style is somewhere in the middle. I prefer a relatively simple approach where my wife and I take advantage of a few offers each year.
Keep an eye on your credit score and open accounts through one of the online credit tools such as credit karma. Watch how much your score gets dinged when you apply for a new credit account. The more information you have specific to you, the better you’ll manage this process.
More specifics about my particular strategy
My wife and I are not extreme credit card churners. Several of the cards I have are cards that I’ve had open for years. My main American Express has been open for more than a decade. However, we have a large family with four kids and traveling with our family is an important priority for us. As such, we attempt to take advantage of a handful of credit card signup bonuses in the travel realm each year. Doing so has made several trips possible for us in recent years, saved us quite a bit of money or allowed us a much more luxurious vacation at a fraction of the cost (we used Marriott signup bonuses for a very nice stay at a Ritz-Carlton not long ago).
As mentioned earlier, the American Express Blue card is used exclusively for groceries. The 6% cash back on a major spending category is extremely beneficial. With our large family, this cash back adds up.
Recently, I’ve been making the most of various business expenses. I’m able to utilize anywhere from $25,000 – $50,000 in business expenses to boost my spend and generate higher levels of rewards. Recently, I’ve focused on the Hilton American Express card to cash in on a wide range of Hilton-related points and awards. Once certain thresholds are met on the Hilton card, we target one or two airline signup bonus awards. Once those thresholds are met, everything else defaults to the good ol’ green American Express card. Next year, we’ll do it over again likely still with the Hilton card and a couple new airline related signup bonuses.
One interesting dynamic for us specifically is that airline rewards are a bit more useful for us than hotel rewards. The reason for this is because of our large family, hotel rooms don’t really work for us in family travel. We typically stick to rentals, so using credit card churning to knock out air expenses is extremely useful for us in our situation. That said, because of our business spending, I’ve been hammering that Hilton Amex, so we are still building up hotel points.
Business expenses and credit card churning
If you have business expenses that you can utilize for your credit card churning strategies, you can hit some lucrative awards. For instance, hitting signup bonuses will be a piece of cake, but you can also hit major additional bonuses for high levels of spend. For instance, one of the American Express Hilton cards have additional bonuses as follows: When you spend $15,000 in a year, they’ll give you a free weekend night at a Hilton property. Additionally, if you hit $40,000 in a year, you’ll lock in Diamond status as a Hilton Honors member. $40,000 in spend might seem super high for a number of individuals, but business owners or employees who incur a lot of expenses and have them reimbursed by the company can often easily hit these kinds of levels. Again, depending on your situation, you can factor these additional rewards into whether a credit card’s annual fee is worth it or not. In our example above, if you’re spending $40,000 a year, the $95 annual fee on the Hilton AMEX is likely an afterthought.
If you’re a business owner, go through your expenses and see where you might be able to better utilize a rewards credit card instead of a different form of payment or a credit card that isn’t earning many rewards. Going through this process and changing up some payment methods might yield you massive rewards on an ongoing basis.
Business owners or employees with high reimbursable expenditures might be candidates for high annual fee cards depending on goals and individual situations. Most major issuing bank such as Chase or American Express offers a premium card card, often with a $400-$450 annual fee, that comes with a number of rewards and perks. Make sure they are perks that you actually use and are perks that will likely save you money. Otherwise, you’re likely just throwing away money at an expensive annual fee in exchange for “status.”
2019 examples of credit card bonus opportunities
American Express Gold Card:
The current bonus is that you earn 35,000 membership reward points after you spend $2,000 in the first three months. Based on the below valuations, the bonus is worth an estimate $750 in point value.
The other benefits to consider for this card are the 4x points at restaurants and supermarkets. You also get $10 statement credits for various dining partners when paying with the card. So, if you eat out a lot, this might be a good card for you.
Annual fee is $250. It’s partially offset by the $100 annual airline fee credit.
Hilton Honors Aspire Card (American Express):
The current bonus is for 150,000 Hilton Honors points after spending $4,000 in the first 3 months. This equates to roughly $900 based on the below valuations.
The major benefit to this card is automate Hilton Diamond status.
There’s a hefty $450 annual fee, but the benefits outweight this pretty quickly if you stay at Hiltons. You’ll get a weekend night free each year, a $250 Hilton resort statement credit each year, a $100 Hilton on-property credit when you book a minimum two-night stay with the card.
Marriott Bonvoy Brilliant American Express Card:
The current bonus is for 100,000 points after you spend $5,000 in the first 3 months. This is roughly $900 in value based on the below valuations.
The annual fee is $450 which is offset by a $300 in statement credits each year when booking Marriott stays. You’ll get a free night award every year on your card member anniversary (to encourage against churning). And you’ll get gold elite status by having the card.
Gold Delta SkyMiles Card (American Express):
Earn 60,000 SkyMiles after you spend $2,000 in the first three months, and a $50 statement credit after you make an eligible Delta purchase in the first three months. Based on the below valuations, this equates to roughly $720 in value.
There are some marginal additional benefits. This is an ideal card for churners since the $95 annual fee is waived the first year. You can cash in the 60,000 SkyMiles bonus, then cancel the card.
Chase Sapphire Preferred:
The current bonus grants you 50,000 bonus points after you spend $4,000 in the first three months.
Chase lets you transfer your points to over a dozen travel partners, so if you’re unsure of piling up points with a specific airline or hotel brand, this kind of card can be useful. Plus the $95 annual fee is waived the first year, making this a very eligible credit card churning option.
Capital One Venture Rewards Credit Card:
This card offers 50,000 miles when you spend $3,000 in the first three months.
Like the Chase card above, this is a good option for churners with a $95 annual fee waived the first year. You can transfer the miles to a number of travel partners. Plus, if you haven’t yet applied for TSA PreCheck, you’ve got an extra reason to sign up for this card, because you’ll get the application fee waived.
What are various credit card, hotel & airline points worth?
It’s a good question, because hotel and airline points vary widely. According to the Points Guy, here are the valuations as of 2019 for some of the major hotel and airline point programs (you can use these valuations + examine the bonus reward potential for some of the credit cards available to find the best options for you):
Credit Card Points (March 2019):
- American Express Membership Rewards: 2 cents per point
- Discover Rewards: 1 cent per point
- Citi ThankYou Points: 1.7 cents per point
- Chase Ultimate Rewards: 1.4 cents per point
- Bank of American Premium Rewards: 1.0 cent per point
Hotel Programs Point Values (March 2019):
- Hilton Honors: .6 cents per point
- Marriott Rewards: .9 cents per point
- IHG Rewards: .5 cents per point
Airline Programs Point Values (March 2019):
- American AAdvantage: 1.4 cents per point
- Delta SkyMiles: 1.2 cents per point
- Frontier: 1.1 cents per point
- JetBlue: 1.3 cents per point
- Southwest: 1.5 cents per point
- United MileagePlus: 1.4 cents per point