This scheme for racking up credit card rewards and taking free vacations isn’t too good to be true. But it’s not right for everyone.
I recently posted a beginner’s guide to credit card churning, which is a process of applying for multiple credit cards at once, accumulating rewards, cancelling the cards, and then applying to new ones again for more rewards.
People are actually gaming the credit card system, scoring some pretty amazing perks. But as you might suspect, credit card churning does not come without risk. And some of those risks are pretty heavy.
Firstly, credit card debt is not to be taken lightly. It’s a trap that’s easy to fall into but can be nearly impossible to get out of. According to Nerd Wallet, the average American household is spending $6,658 per year on interest alone. If free vacations are your motive, you could squeeze out a couple family vacations with that much money put in savings instead of the pockets of credit card companies.
Secondly, your credit score is everything. You never want to jeopardize it, even for the most tempting of rewards. You end up risking your ability to make any big purchases in the future, such as a house or a car, find a good place to live, and even your employment potential.
Before you consider credit card churning, you need to give your personal finances an honest look in the mirror.
You should absolutely NOT start credit card churning if:
1. You are already in debt.
If you already have credit card debt, I hate to break it to you, but churning is not for you. Paying off that debt should be your priority. Your credit cards should hold a zero balance before you start any churning activity, no exceptions.
2. You plan to purchase a house, car, or other large item within the next two years.
Credit card churning does temporarily lower your score. While it will eventually bounce back up, the hard inquiry on your credit won’t fall off your report completely for two years. Even if it is a minor dip, you want your credit score to be as high as possible before taking out a large loan so that you can ensure the best possible interest rate.
3. You struggle with spending responsibly.
Are you a shopaholic? Have a habit of wondering where all of your money went by the end of the month? If you have to think about whether or not you can trust yourself with a lot of credit to your name, and especially if you’ve fallen into debt recently, then you shouldn’t be churning.
4. You are unorganized.
Opening and closing multiple credit cards at a time, each with their own terms and conditions, minimum spend requirements, payment deadlines, and rewards systems is a lot to handle. It’s enough to throw even the spreadsheet-savvy for a loop. If you aren’t already tracking your spending closely, using personal finance apps, and remembering to send off birthday cards on time, you might not want to start churning.
5. Your credit score is below 720.
You don’t want to risk your credit score while churning. Not only do you need to have a good credit score in order to be approved for the best cards, but even if you are approved, new cards are going to lower your credit score temporarily. You can only afford to ride that out if you already have a pretty great score. If your score is 650-720, you could still consider applying to a card here and there, but you should forgo more aggressive churning strategies.
6. You don’t have a lot of expenses.
You need to be 100% sure that you can both meet the required minimum spends to get the rewards and that you can pay off your cards in full – every single month.
7. This is the first thing you’ve ever read on credit card churning.
If you pass all the above tests, but you haven’t done any other research on the topic, you are not (yet!) ready to start churning credit cards. The tangled ins and outs of credit scores and credit card reward programs take hours and hours of research to sort out.
You need to have a very clear churning plan before diving in. So, make sure to do your homework! If you think you’re right for credit card churning, look out for my next post in this series on how to get started.
