How to be Responsible When Credit Card Churning
Credit card churners are people who constantly submit applications for new credit cards so as to take advantage of promotional offers and bonuses. An example is free frequent flyer miles. To get as many as possible, churners apply for a card, spend the minimum amount the card requires, get their frequent flyer miles, and then cancel the card whenever the term they agreed to is up. They then move on to another card and do it all over again.
Is Your Credit at Risk?
Your first question is likely to be: "Doesn't this hurt their credit?" The quick answer is a conditional "no." A credit card churning strategy should not dramatically hurt your credit score if you start with excellent credit, pay your balance in full every month, and carry little or no debt. If you pay your balance and shun debt, then you're unlikely to see a major impact on your credit.
But the longer answer entails a precise definition of "minimal credit impact." We'll spell out specifics on the credit consequences and the larger financial issues after we look at some examples of how churning works with the different categories of credit cards.
Points, Cash Back and Miles - Pros & Cons
Points: These cards have points worth a "set" amount. Generally, a credit card issuer will offer statement credit (which is used to pay down your balance), gift cards or travel redemptions that are worth 1 point or 1 cent, however certain redemptions such as products they sell may have a point value less than one point. There are some programs that don't even use points -- they instead calculate your earnings in real dollars.
Cash back: This is a very rare category of cards, where instead of allowing many different types of redemptions like most fixed value cards, you can only redeem for cash, which is deposited directly into your bank account. The downside is being liable for foreign transaction fees if you use your card abroad.
Miles: These are essentially the same as points cards because they have a set value, so in that sense they are not really a separate category. The downside to both these cards is that they can only be used to redeem for travel (buses, subways, flights, rental cars etc.) without significant value loss. If you try to redeem them for other products, they become worth only a half cent.
Pros: The biggest upside of fixed value cards is that there are no blackout dates compared to using frequent flyer miles or some of the hotel offers. This is again because your points have a "set value," so the bank is essentially buying your airline seat with your points. This is a big pro for people who want to fly on specific days, don't like hassle, or have families where multiple seats are needed.
Cons: The downside is what happens with expensive hotels or premium international travel -- since there is a set value, business or first class seats that are very expensive can cost a ridiculous number of points. This applies, similarly, to expensive hotel properties that can often go for $1,000 per night.
For the above reasons, you can create better value using frequent flyer miles or hotel points.
Frequent Flyer or Hotel Co-Branded Rewards
These cards earn points in a particular airline or hotel's rewards program. Essentially, a credit card issuer partners with a specific airline or hotel and allows you to earn that program's points. Frequent flyer miles are generally redeemed based on an award chart. Generally, the farther the distance flown, the more amount of miles required. The variable value is the key.
Pros: If you want to squeeze the most value out of every point, then frequent flyer programs/hotel programs present the best opportunity to do so.
Cons: Some card points are notorious for being easy to earn, but as a result, they are worth little in value when seasons change. Also, a readjustment occurs every year, increasing the prices of awards or nights which amounts to a devaluation of your earnings.
Each airline has its own rewards program, but you can simplify your life by ignoring these and sticking to fixed value cards.
Transferable Points Cards
These are a hybrid of airline or hotel cards with the option to use as fixed points. You want to make sure the card you pick is compatible with your frequent flyer program. Or, if you're planning to open one after enrolling, pick a program with an airline you'd be interested in flying with. Also, the annual fees associated with these cards seem to be higher, probably because the points are a little more valuable. You'll have to weigh whether or not the extra cost is worth what you're earning in points.
Pros: There is nearly no downside to these transferable points because the flexibility and redemption value of the points is so significant.
Cons: There's some limited availability as compared with the fixed value points.
Best Credit Cards for Your Specific Needs
|Credit Card||Notable Feature||Who It's Best For|
|Blue Cash Everyday® Card from American Express||Bonus cash back rates on groceries and department stores.||People who shop regularly at supermarkets and prefer cash back rewards.|
|Blue Cash Preferred® Card from American Express||Extremely high bonus cash back rates on groceries and department stores.||People who spend more than $132 per month on groceries and prefer cash back rewards.|
|The Amex EveryDay® Credit Card from American Express||Earn bonus rewards at supermarkets.||People who shop frequently at supermarkets and use the credit card at least 20 times per month.|
|The Amex EveryDay® Preferred Credit Card from American Express||Earn bonus rewards at supermarkets and gas stations.||People who shop frequently at supermarkets and gas stations and use the credit card at least 30 times per month.|
|Blue Sky from American Express®||Earn rewards points for travel statement credit.||Frequent travelers who want flexibility with their travel rewards.|
|American Express® Green Card||Earn rewards points under the Membership Rewards program.||People who don't have great credit and also want to work their way up to better American Express cards.|
|American Express® Gold Card||Earn bonus rewards points on airlines and dining under the Membership Rewards program.||People who dine out and flying regularly and want to participate in the American Express Membership Rewards program.|
|American Express® Premier Rewards Gold Card||Earn bonus rewards points on airlines, dining, gas, and groceries. Get a $100 airline credit.||People who travel frequently and spend a lot with airlines, restaurants, gas stations, and supermarkets.|
|Platinum Card® from American Express||Get access to premium travel perks including unlimited access to 900+ airport lounges, elite status with hotel loyalty programs, and more.||People who travel frequently and prefer to do so with premium perks and privileges.|
|American Express Serve®||Prepaid debit card with low fees and convenient features.||People who don't want or cannot get a credit card but still want to be able to pay with a card while minimizing fees.|
|Capital One Venture® Rewards||Earn unlimited 2X miles per dollar on all purchases.||People who travel often and don't want to restrict their rewards to a particular airline or hotel.|
|Capital One VentureOne® Rewards||Earn unlimited 1.25X miles per dollar on all purchases.||People who want to earn travel rewards, but don't want to pay any annual fee.|
|Capital One® Quicksilver® Rewards||Earn 1.5% cash back on all spending.||People who don't have any defined spending patterns and want to earn decent cash back on all their purchases.|
|Capital One® Quicksilver®One Rewards||Earn 1.5% cash back on all spending, but there's an annual fee.||People with average credit who want to earn simple cash back rewards on their spending.|
|Capital One® Platinum||Designed for people without good credit to help rebuild credit with no annual fee.||People with bad/average credit who want a credit card to improve their credit without a security deposit.|
|Journey℠ Student Rewards from Capital One®||Earn up to 1.25% cash back on all spending and get a higher credit limit with 5 consecutive on-time payments.||Students who want a credit card that will offer cash back on all kinds of purchases.|
|Capital One® Secured MasterCard®||A secured credit card with an extremely low initial deposit requirement to help rebuild credit immediately.||People who have poor credit and don't have a lot of cash for a big security deposit.|
|Chase Sapphire Preferred®||Earn bonus miles on travel and dining. Points can be transferred to partnered airline and hotel programs. Redeem rewards travel at a discount through Chase Ultimate Rewards.||People who want to earn travel rewards that can be transferred to multiple airline and hotel programs while getting different travel protections.|
|Chase Sapphire Reserve®||Get statement credits for travel spending and Global Entry membership. Free Priority Pass Select membership and bonus rewards on travel and dining.||People who travel internationally and dine out frequently.|
|Chase Freedom®||Earn 5% cash back on categories that change every quarter.||People whose shopping patterns changed based on the season and prefer to earn high cash back on those purchases.|
|Chase Freedom® Unlimited℠||Earn 1.5% cash back on all spending.||People who prefer to earn a good cash back rate on every purchase.|
|Chase Slate®||Introductory offer tends to include 0% APR on balance transfers for an extended period of time. Also, balance transfer fees are waived during the first 60 days||People who are trying to pay down their high-interest debt quickly through the use of debt consolidation.|
|Discover it®||Earn 5% cash back on certain categories that change every quarter.||People who want to earn high amounts of cash back on season-appropriate items.|
|Discover it® Chrome||Earn bonus cash back at gas stations and restaurants.||People who drive and eat out often.|
|Discover it® Miles||Earn 1.5% miles on all spending and miles can be used to redeem for travel statement credit.||People who want to earn travel rewards without any annual fee.|
|Discover it® for Students||Earn 5% cash back on certain categories that change every quarter.||Students who want to earn high amounts of cash back on various spending categories.|
|Discover it Chrome for Students||Earn bonus cash back at gas stations and restaurants.||Students who are driving and eating out often.|
|Discover it® Secured||Secured credit card that can help rebuild credit with no annual fee.||People with bad credit who want to repair their credit profile while also earning cash back on spending|
Can Credit Card Churning Be Done Responsibly?
Even if it is only minimal and temporary, opening and closing a lot of credit cards will have a direct effect on your credit score, amounting to a few points per card change. Just how temporary or permanent the damage is hard to determine.
One couple we've heard about alternates signing up for cards -- every few months they take turns submitting an application. Their credit score was near 800 before they began churning. After adding six cards to their collection, it dropped to 760. But three months later, the score went back up to 790.
These churners say it's a fallacy to think that your financial life depends on keeping your credit score over 800. They claim to have successfully landed a mortgage loan for a house with scores in the mid- 700s. And they actively monitor their credit report to make sure where their score stands.
Nevertheless, a responsible credit card churning strategy suggests you use your plastic just as you would cash -- never create a balance you'll have to carry on the card just to get some kind of bonus offer.
More importantly, keep in mind that credit card users who've shown a history of exploiting promotional offers may be denied their rewards.