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What is credit card churning?
Credit card churning, sometimes known as credit card flipping, is the process of strategically opening and closing credit cards to earn rewards and bonuses. A credit card churner is someone who ‘churns’ through a lot of credit cards. Credit card churning is a risky process, and can have a negative impact on your credit score and overall financial wellbeing.
Some of the reasons why a person might churn credit cards include:
- Credit card churning to collect perks: Some credit card providers offer various perks to attract new customers, and churners may try to take advantage of introductory offers or special deals, such as reward points, cashback, and sign-up deals.
- Credit card churning for balance transfer: Australians hoping to consolidate multiple sources of debt into one place could do so with a balance transfer credit card, and credit card churners may also use these cards to avoid incurring interest on outstanding balances.
Please note that Canstar is not endorsing the practice of credit card churning, and the following is intended as general information only.
Why is it called credit card ‘churning’?
In financial terms, to ‘churn’ means to turn something over at a fast rate—you may have heard of businesses churning customers, clients, or staff. When someone ‘credit card churns’, it means that they rapidly apply for and then cancel credit cards from different organisations. Credit card churning can also be called credit card flipping or credit card hacking.
How does credit card churning work?
The idea of credit card churning can seem deceptively simple: find a deal, weigh it up, apply for the credit card, make sure you can meet the terms of the deal (for example, the minimum spend that may be required), collect the reward, and then close the account.
However, credit card churning is typically a complex process. It requires extreme attention to detail and a high level of financial organisation and discipline. It’s also considered a high risk strategy, as there are many conditions attached to these deals that could catch a churner out, and this could result in a higher debt level.
Credit card churning is also financially risky in a number of key ways. It may negatively affect your credit score, as every time a churner applies for a new card it is recorded in their credit history. Additionally, credit card providers usually launch intro deals to try and win—and then keep—new customers, so may scrutinise anyone with a history of opening and closing credit cards and make it harder to be approved for (yet another) credit card.
Is credit card churning legal?
While there is no definitive law against credit card churning in Australia, many banks have policies in place that seem designed to discourage the practice. These can include:
- Requiring people to spend a minimum amount of money on a card within a certain timeframe to qualify for the reward. These typically have to be ‘eligible purchases’, which could mean some regular expenses, such as insurance or electricity bills, may not count.
- Exclusion periods, which prevent anyone who has previously taken advantage of an intro deal from signing up for a new card within a certain timeframe (often 12 to 24 months). This can limit the amount of cards a person can churn.
- Charging annual fees within the first weeks of signing up for a card (ie: charging yearly fees in advance). It is entirely up to the bank’s discretion if you ask them to refund the unused portion of the yearly fee. This could leave the churner out of pocket.
- Holding back the rewards until you’ve held the card for a minimum length of time, such as 30 to 90 days.
Do you need a good credit score for credit card churning?
You may also want to have a good credit score before you consider credit card churning. Unsecured credit such as credit cards tends to rely on credit scores more than secured credit such as home loans and some car loans.
If you apply for a credit card and your application is declined, this is recorded as a negative event on your credit report, which could affect your credit score.
Before pursuing a credit card churning strategy, you may want to first check your credit score to know where you stand with the lender. If you’re struggling with bad credit, you could consider taking steps to help improve your credit score before applying for any credit cards.
What are the pros and cons of credit card churning?
As with any financial strategy – particularly high risk ones – there are a lot of potential pitfalls that go hand-in-hand with any possible gains from credit card churning:
Potential pros of credit card churning
Potential rewards
One of the most obvious potential benefits of credit card churning is taking advantage of the deals on offer. This could include:
- adding points to your airline frequent flyers program balance;
- earning rewards points to use in the financial institution’s rewards program;
- cashback onto the card, or;
- any other deal, such as discounted yearly fees.
Keep in mind that you’ll need to meet the terms and conditions of each deal.
Potentially help build credit score
If you apply for a credit card and pay off the balance regularly, this may help to build a positive credit score, thanks to comprehensive credit reporting. Just keep in mind that any missed payments could negatively affect your credit score.
Learning about different financial institutions
Credit card churning means that you will come into contact with a lot of different credit providers, and experience the pros and cons of being their customer. You may decide to stay with or leave a financial institution based on your experience, which could affect your future financial decisions. You could also become very familiar with decoding financial terms and conditions, and reading between the lines when it comes to credit.
Potential cons of credit card churning
Very high financial risk
As mentioned previously, credit card churning can be a very high risk strategy.
Requires high level of financial literacy
Effective credit card churning often requires a significant amount of financial knowledge, as well as record keeping and organisational skills. Churners need to read the fine print of deals very carefully, and understand them in minute detail, to avoid any possible pitfalls.
Potential to create a debt spiral
Credit cards typically have higher interest rates than other types of credit. If something goes wrong while credit card churning, you could be left with large debts that incur a high rate of interest every month. This could create a ‘debt spiral’, where debt increases quicker than you’re able to pay it off, due to cumulative interest charges.
Potential to negatively impact credit score and future loan applications
Successive credit applications and rejections could negatively affect a person’s credit score. This is because comprehensive credit reporting requires that positive and negative events are recorded on a person’s credit file. A poor credit score could affect a person’s ability to obtain future credit, such as a home loan. While it may be possible to explain to a lender why there are a number of credit card applications on a file, it would be more difficult to justify negative credit events, such as rejections or missed payments.
May be flagged by the financial institution
Anecdotal evidence (via social media) suggests that some credit card churners have been ‘flagged’ by credit card companies and providers as churners. This, in turn, has made it harder for them to be approved for a credit card. This anecdotal evidence has not been substantiated by official sources, such as bank policies, but remains a possible risk due to the high level of social media chatter on the subject.
Need a good credit score
To be approved for a credit card with a deal attached, you need to have a good credit score. This could prevent certain people from credit card churning, such as people with no credit history.
