We know about the ways a credit card can take advantage of people, but do you know you can flip it over and take advantage of them instead? There are many ways you can make a credit card work for you, and one way is credit card churning.
This involves looking for credit cards with the best benefits. One of which is Capital One’s Venture Rewards card that offers a 50,000-mile sign-up bonus. Many more companies will be offering similar benefits to get customers in this already saturated market, so there will be no shortage of churning.
You need to be smart and patient to deal with this. Learn how to do it right with our credit card churning guide below.
1. What is Credit Card Churning?
Credit card churning is the act of signing up for a credit card, deactivating it, signing up for another one, deactivating this one, and repeating this process again and again.
Because of the steps it entails, a person who’s interested in doing this must have the following:
- Good to excellent credit
- On-hand cash
- Time and effort
You need good credit to gain approval from the credit cards that are great for churning. You also need some cash-on-hand to pay off the credit you’ll accrue to make this successful. And of course, you need time and effort to research and do these steps many times over.
With that out of the way, why do people do this in the first place?
2. Benefits of Card Churning
There’s only one reason for this: credit card sign-up bonuses. Some credit cards may offer cash bonuses, points, or miles to new applicants. These are the ones you want for churning.
There’s one caveat in churning: you need to spend a certain amount within a limited time frame. This is why you need some on-hand cash – to pay off that amount before it gains interest.
Doing this many times will allow you to rack up more bonuses and rewards than you would have gained had you stayed with one credit card. A sign-up bonus of miles in a single card can take you on a one-way or round trip plane ride. Imagine where a stack of miles bonuses can take you?
Don’t think that credit card companies aren’t getting anything from this, though. If you’re not careful, you might accumulate debt and interest that are worth more than the benefits you’ll get.
3. How to be Successful at Credit Card Churning
If you want to be able to reap the benefits of this method, you must have discipline in using a credit card and to carry out the following churning tips:
Organize Your Credit Cards
Keep tabs on all your credit cards and their details in one place. We’ve found that the best way to do this is to create a spreadsheet, where you can put information like: the bonus, monthly due date, balance, qualification for the bonus, and the deadline for qualification.
To be extra specific, you may also put when you opened the card, how many cards you opened from a company, and whether or not you’ve used up the bonus.
Pay Your Dues in Full
To get the most out of the bonuses, don’t pay more than what you have to. Avoid interest by paying your credit dues in full every month.
Make On-Time Payments
If you ignore this tip, you might have to pay for penalties and other fees. These can add up and they will eat at your bonus.
This tip will also protect your credit as late payments may ding your credit. This can make it harder to apply for credit cards and even loans in the future.
Use Your Card to Pay for Things You Need
Buying things you don’t need will defeat the purpose of credit card churning. Some people will even spend more than the value of the card’s bonus.
To avoid this, use the card only for the things you need anyway. You can use it for things like groceries, new clothes, and new appliances but only if can also pay these in cash.
Stop Using It When You Qualify for the Rewards
Some people will get accustomed to swiping the card even if they have already qualified. This can make them more vulnerable to interests and other charges if, in the end, they could not pay off the balance.
Get a Card Without Annual Fees
Annual fees can also eat away at your bonuses. Only get cards without annual fees for life or for the first year. If things go well, you won’t need the card for the next year anyway.
You can also call and ask if they can waive the annual fee. Because of the competitive credit card industry, many companies are willing to let that go to keep you as their customer.
Don’t Sign Up for Everything At Once
Keeping up with multiple cards is hard, not to mention it can create more problems down the road. Only take the number of cards you can afford. If you can’t pay each one in full every month, you’ll end up with more debt.
Read the Fine Print
Make sure you will qualify for a bonus by reading the fine print. Companies may disqualify you if you’ve already received a bonus from them, for example.
4. Does It Have an Effect on Your Credit Score?
Yes, it does have an effect on your credit score, but it won’t ruin it as long as you do it right. This is because a hard inquiry happens on your credit report whenever you apply for a credit card. If a hard inquiry happens all too often, it may lower your credit score.
Other factors that may lower your score include your credit average age, which decreases every time you open a new account.
However, remember that the most significant factors that will affect your credit score are your ability to make payments. If you make sure you pay the full amount and on time, you’ll prevent your credit score from taking a dive. You may even see your score increase because of being diligent in your payments.
Nonetheless, make sure to keep tabs on your credit score to prevent any hard damages.
Be Smart About Your Financial Life
Credit card churning can take a lot of your time and energy. Before you do it, make sure you’re ready for it by having cash and discipline.
Stay on top of your finances by reading our other posts for more tips like this. Get tips on how to save and invest in your 20’s and more.
