What is credit card churning? Should you do it? Benefits, risks and how it works

Most credit card users are lured to them because of the rewards and benefits they offer. Users mostly look for ways to maximise these rewards through their credit card expenses. Credit card churning is one such method designed to maximise benefits beyond what a single credit card can offer.

What is credit card churning?

Credit card churning is a method of strategically opening and closing accounts to fully utilise rewards, bonuses, and other offers provided by credit cards. It aims to earn more rewards and save money through credit cards. The rewards can include joining bonuses, points, or cashback that could be redeemed for travel, dining, or shopping. However, it might lead to potential risks and financial mismanagement if not done carefully.

How to do it?

1. Study

Before planning to opt for credit card churning, make sure to research various credit card offers well. Choose those credit cards that offer the highest sign up bonuses, rewards, and other benefits. Additionally, study your own financial standing before choosing a credit card.

2. Get the right card

After choosing the right credit cards, apply for multiple credit cards quickly.

3. Unlock rewards

Many credit cards will have a limit beyond which you can access benefits. Fulfill those conditions to unlock the benefits of your card.

4. Enjoy rewards

After meeting spending requirements to earn rewards, you can use them according to your needs.

5. Repeat the process

Now, evaluate all your cards again, considering the rewards and various fees. Close those credit card accounts which are no longer beneficial and continue with those that still earn higher rewards. Repeat this process to get maximum benefits out of credit cards.

Advantages of credit card churning

1. Higher savings: Various offers provided by multiple credit cards can help to save a lot on your expenses, especially on travel, airport lounge access, hotel stay, online shopping, movie tickets etc.
2. Customisation: This method helps you customise your credit card rewards according to your needs and lifestyle. You can multiple credit cards to take advantage of various benefits offered by them. Some cards may offer additional points, and rewards whereas some may offer high discounts, you can use these cards according to your present requirements.
3. Bonus: One of the major highlights of credit card churning is sign-up bonuses, which can be very high on some cards. After navigating through multiple credit cards, you can earn a huge sum as sign-up bonuses.

Disadvantages of credit card churning

1. Fees and charges

Most credit cards charge annual fees, joining fees, and other charges, especially the ones that offer sign-up bonuses. In certain cases, getting a sign-up bonus might not be as beneficial due to paying other fees.

2. Influence credit score

Your credit might get negatively impacted due to the opening and closing of multiple credit cards in a short period of time. Applying for new credit cards results in hard inquiries about your credit report that might reduce your credit score for some time. Meanwhile, your credit utilisation ratio may be impacted due to closing credit card accounts.

3. Rules by lender

Many banks do not encourage credit card churning. Therefore, they might implement some rules over opening and closing credit card accounts in specific time period. Some restrict sign-up bonuses in certain cases.

4. Financial management

Credit card churning may lead to a severe financial crunch if not done carefully. Opening and closing an account strategically requires significant experience and knowledge. Additionally, non-payment of dues on time may lead to more concerns, especially with multiple credit cards.

5. Chances of overspending

 In order to avail maximum benefits of your credit cards, you might overspend, which could significantly affect your finances. Make sure to spend according to your budget regardless of bonuses and rewards.

Credit card churning is a tricky method involving a lot of research, smart spending and a track of your finances. If done well, this might help you to get many rewards, however, if done incorrectly, you might end up hurting your finances.