What is credit card churning?

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What does credit card churning mean?

Credit card churning is when a consumer opens one credit card after another, and then closes each one at a specific point in time, in order to achieve a financial benefit. So, a credit card churner is someone who ‘churns’ through a lot of credit cards.

The churner’s financial goals could be:

Credit card churning to collect perks – Taking advantage of introductory offers or special deals, such as rewards, points and cashback, offered by providers to consumers who sign up for a new credit card.
Credit card churning for balance transfer – Transferring debt from one card to another to avoid incurring interest on outstanding balances.

To learn more about balance transfer, and compare options, visit our comparison page dedicated to credit cards with a balance transfer option. This article will focus on credit card churning for intro deals and perks.

Why is it called credit card ‘churning’?

When you hear the term credit card ‘churning’, you could be forgiven for thinking that it’s the creation of some sort of new foodstuff (eg: milk is churned into butter). However, in finance circles, the term ‘churn’ means something entirely different. According to the Macquarie Dictionary, it also means “the turnover of customers, clients, staff, etc, who sever connection with a business, organisation, etc, and are then replaced” and also “churn through: to use and discard at a rapid rate”. When someone ‘credit card churns’, they rapidly take up and cancel credit cards from different organisations. Credit card churning can also be called credit card flipping or credit card hacking.

Understanding credit card churning for sign-up deals

Financial institutions earn money from credit cards, through fees and interest (among other things). But the credit card market is a competitive place, with lots of different options for consumers to choose. To try and attract new customers, providers often offer sign up discounts, deals or rewards. It’s these types of deals that ‘churners’ typically focus on when credit card churning.

→ Explore: Credit card offers and sign up deals

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 such things as:

requiring people to spend a certain amount of money on a card within a certain timeframe, to qualify for the reward. These typically have to be ‘eligible purchases’, which means only certain purchases go towards the ‘rewards’ spend tally. This could mean 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.

Canstar money expert Effie Zahos says while it is possible to ‘churn’ in Australia, it is a high risk strategy that should be approached with caution.

“When financial promises seem too good to be true, they usually are,” Ms Zahos says.

“Such is the case with credit card churners who say they have earned millions of points simply by opening and closing a few credit cards. In reality, it’s a great deal more complex than that – it requires a high level of skill, can occupy a great deal of time, and involves potential risks.”

“Plus, there’s a very small margin for error, which could end up leaving the unsuccessful churner with huge debts and a big scar on their credit history.

“For example, if you have multiple cards, and you spend money on them trying to chase a deal’s spending requirements, and don’t pay that debt off, you could be left in a debt spiral, with each outstanding card balance accumulating interest.”

She said the credit card providers ‘bake in’ barriers to churning in their card terms and conditions, which should be researched thoroughly before signing up for a deal.

“Banks are in the business of making money out of cards,” she said. “The sign up deals are meant to attract customers, but they want you to stick around. That’s why they have rules that encourage you to stay for at least 30 or 90 days, sometimes longer, before you can get your reward.”

“Ideally, though, they would like you to stay and become a loyal customer.”

Ms Zahos said you may also need to have a good credit score before you even consider credit card churning.

“Your credit score is a reflection of your credit history, which includes any positive or negative events,” she said.

“If you apply for a credit card and your application is declined, this is recorded as a negative event on your credit report, which, in turn, could impact your credit score. Unsecured credit – which is what a credit card is – does rely on credit scores more, so it’s best you know where you stand with yours before considering taking on the role of a credit card churner.”

But what can you do if you get into trouble when churning?

“Stop churning immediately,” she said. “And work out a debt repayment strategy.”

Explore: 7 Steps For Improving Your Credit Score

How does credit card churning work?

The premise of credit card churning can seem deceptively simple:

Find a deal
Weigh it up
Apply for the credit card
Meet the terms of that deal
Collect the reward
Close the account.

But it is usually a complicated venture:

It requires extreme attention to detail and a high level of financial organisation and discipline.
It’s 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.
It may also negatively impact your credit score, as every time a churner applies for a new card it is recorded in their credit history.
Plus, 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 difficult to be approved for (yet another) credit card.

(We explore the pros and cons of credit cards in further detail in a section below.)

Let’s take a more detailed look at the steps a churner might take when trying to take advantage of introductory offers.

1. Find a deal

As mentioned above, credit card churning involves taking up introductory offers of multiple cards. These intro offers could include

This is where anyone signing up for the card, and spending a certain amount on it within a certain time frame, would receive a certain number of airline points, for whatever airline that card is affiliated with.

For example, some providers are aligned with Qantas or Velocity (Virgin Airlines and partners), or other international airlines.

These points could be added to the churner’s points balance in the airline’s points program, which could enable them to upgrade or purchase flights, book hotels and hire cars within that program.

This is where anyone signing up for the card (and spending a certain amount on it within a certain timeframe) would receive a certain amount of points to use in the provider’s Rewards program.

For example, the big four banks all have their own rewards programs (CommBank calls it an ‘Awards’ program), which allow users to earn points for certain types of credit card purchases, and then redeem those points in their rewards store (for goods and services, or even gift cards), get cashback on their card balance and convert points airline points (for flights and travel).

Some intro deals specify that new customers (who meet eligibility criteria) could receive a certain amount of money credited back to their card, once they had spent a certain amount of money within a certain timeframe.

Credit cards that have rewards programs attached to them are usually more expensive than other types of credit cards, as they typically come with an annual fee.

A churner may be enticed by an intro deal that discounts or waives the first year’s fee, particularly if it’s a high-points-earning card.

The logic here could be that the lower the fee, the lower the ‘cost’ is of earning rewards points.

They would typically close the account when it came time to pay the full annual fee.

Credit Cards with Sign Up Offers

2. Weigh up intro deals: Is credit card churning worth it?

While the sign up perks might look attractive on the surface, it’s important to lift the hood and thoroughly inspect how they work before making a decision on their financial benefit. All introductory deals come with fine print – special terms and conditions that govern not only what the reward is and when it is given, but also how the credit card holder must act in order to qualify to receive them.

The following is a list of considerations you may want to include when weighing up a deal. This is by no means an exhaustive list, as each deal and card presents a different scenario to evaluate. When weighing up potential deals, plotting the deals, timeframes and conditions, as well as your financial capabilities, on a spreadsheet could help to organise the information.

Many introductory deals require card holders to make eligible purchases (see below) worth a certain amount on a card, within a strict time frame.

It’s important to weigh up whether or not you are able to meet these conditions without making unnecessary purchases or spending above your means.

If you are unable to pay the outstanding balance off when the minimum repayment is due, you’ll be charged interest on the entire balance of your card (even those charges not considered as an ‘eligible purchase’). If you have multiple cards, this could lead to financial hardship.

What is considered as an ‘eligible purchase’ differs between deals and providers, so it’s very important to know what will be included in the ‘spend’ tally.

For example, some deals exclude paying government agencies, cash advances (or cash equivalent transactions, such as buying gift cards or vouchers), and even paying bills.

Do you have enough ‘eligible’ ways to contribute to the ‘spend’? Can you do it in the time required?

Keep in mind that if you buy something and then return it to get a refund to the card, that amount will likely be excluded from the ‘eligible spend’ tally. Different providers have different rules around this.

If you are approved for a card with an introductory deal, there is typically an ‘exclusion period’ that applies.

This describes the amount of time you’ll have to wait before a provider will let you apply for another card with an introductory deal.

The timer may kick in at the time you open the account, or only begin when you close it.

Some providers extend this exclusion period across all of their credit card products, even if there is no special deal attached. This could mean you might not be able to apply for any other card with them for a set period of time. So, for example, if you close a card with Provider X, you can’t open another credit card (of any sort) with Provider X for 12 months from the date of closure.

Some deals are limited to ‘once in a lifetime’, which means you may never be eligible to receive that particular type of reward again from that provider.

You may need to keep an account open longer than anticipated to be able to receive payment of the rewards. For example, cashback may only be able to go back on the card, which needs to be kept open until the reward is paid, which may impact the amount of fees you are required to pay.

When it comes to airline points deals, the points are typically paid directly into the airline rewards program account. So, if you’re not already a member, you may need to pay a fee to join the program.

How likely are you to be approved for the credit card? While this can be difficult to determine, it’s important to remember that if you apply for a credit card, and are rejected, this would be recorded on your credit report. This is likely to have a negative impact on your credit score, especially if there are multiple instances of credit card applications and/or rejections.

Whenever you apply for a credit product (such as a credit card), under government rules, the provider must perform checks to assess if you are capable of paying back the loan.

They are also required to spell out any eligibility conditions, such as what documents or evidence you need to show the provider.

Their eligibility conditions may also include credit score requirements (eg: you have to have an excellent credit record).

Explore: Check your credit score for free.

What is the annual fee and when is it payable? What does it cover?

How does it stack up against the potential rewards?

If the annual fee is higher than the financial benefits from the introductory deal, it’s unlikely that the deal is worth it.

Depending on how you intend to use the card, different fees may apply, which could wipe out any financial advantage of the introductory offer. For example, there could be a fee for cash advances or currency conversion.

What happens if you miss a minimum repayment – is there a fee for that? This is important to understand: if you miss payments on multiple cards this could really add up to financial hardship.

Explore: How Much Do Credit Card Fees Cost?

The number of days you have to pay off any purchases, before interest starts being charged, could be an important consideration, particularly if you are juggling a number of cards at once.

It’s also important to understand what the term means exactly for each particular card. Different providers may exclude different types of spending or charges from interest-free periods (such as cash advances).

A common misconception of the interest-free period is that the full period duration applies from the time each purchase is made. This is not the case. The interest-free period typically starts on the first day of your statement period, regardless of when you made the purchase.

Explore: Credit Card Interest-Free Periods: How Do They Work?

This is the interest rate that is applied (after the interest-free period) to purchases. This is typically much higher than other forms of credit, and can quickly turn a low outstanding balance into a huge debt.

If there’s a discount applied to the purchase rate, as part of the intro offer, what is the ‘revert rate’? This is the rate that will apply to purchases after the intro offer period expires. It could apply to the entire outstanding balance of the card, not just to purchases made after the deal expiry date.

This is an indication of how quickly it could be to rack up a points balance with a particular card. This could be in addition to any intro deal, and may have an impact on the performance of credit cards being considered for churning purposes.

While this is an artificial measure (as you have to spend real money to earn these points that can be redeemed for theoretical rewards), it could be used as a yardstick for the potential of a card. For example, if there are two cards that have similar rewards points bonuses (for meeting a spend limit at a particular time), the ‘rewards per dollar spent’ could be used to work out which card would allow the user to clock up the most points from using the card (over and above the bonus points).

Some cards have a limit on how many points can be earned during a certain period of time, or under certain circumstances.

For example, there are some cards that allow users to earn an ‘uncapped’ number of points per month, while others limit the amount per month. Or, there might be stages of caps, such as earning up to a particular amount and then the ‘rewards per dollar spent’ amount is reduced. For example, a card might allow you to earn ‘2 points per dollar spent’ up to $3,000 a month, and then reduce it to ‘1 point per dollar spent’ for the remainder of the month.

There may also be limits on the types of purchases that qualify to earn points.

It’s easy enough to evaluate the cash value of cashback rewards programs – where $150, for example, is credited to your card account when you’ve spent $3,000 in eligible purchases in three months. So that means every dollar spent during that time earns 5c cashback.

But estimating the value of Rewards points is trickier. That’s because they can be swapped, redeemed and converted in many different ways.

It’s important to have an idea of how much value a reward point is in a particular program, so you can compare it to what points are worth in a different program. This allows credit card churners to work out which intro deal might be more valuable.

One way to compare could be to pick one item that you may want to ‘purchase’ with those points, such as airline tickets on a particular route serviced by the airlines in the providers’ rewards programs, or giftcards (in a certain amount for a certain store) that are commonly offered in different providers’ rewards stores.

In the equation, you should also consider any ‘costs’ that may impact the value of those points, such as fees, spending requirements, etc.

Part of churning is closing accounts, so it makes sense to evaluate what’s involved in closing a credit card with the institution offering the deal.

Consider such things as turn-around time (will that length of time force you to pay fees), or if there are any costs involved.

3. Apply for the credit card

It is usually possible to complete credit card applications online. To get a credit card, you will typically need to:

be 18 years old or over
be an Australian citizen, permanent resident or hold an eligible visa
have a good credit history
meet any minimum income requirements specified

It’s a good idea to check your credit score before you apply for a credit card. You can check your credit score for free with Canstar. Make sure you have checked carefully if you meet the eligibility criteria before applying for a credit card, as a declined application could damage your credit score.

Explore further: How To Apply For A Credit Card: Are You Eligible?

4. Meet the terms of that deal

Once you have the credit card, you will need to satisfy the conditions of the deal if you want to receive the promised reward.

5. Collect the reward

When you’ve met the conditions of the deal, the reward should be delivered. It’s a good idea to know exactly what the reward is, where it will go (such as in your account, on your card, or credited to a rewards program such as an airline frequent flyer program), and when it will be sent to you. If it is going into a frequent flyer program or a rewards program, it’s a good idea to become familiar with the terms and conditions of that program, too, to ensure that you know how the reward can be used and if there are any fees associated with having access to that program.

6. Close the account.

You may decide at this point to close the account. When you close the account, there are a few things that you may like to keep in mind:

If you’ve set up any direct debits, such as automatic payments, from the account, make sure they have been changed to a different account. Otherwise, you may not be able to close the account, or, if a direct debit goes through and your account has been closed, your payment may bounce. Depending on the type of charge, this could be recorded as a negative credit event. Plus, you may be charged a fee by the credit provider for sorting it out.

It may be possible to ask for a refund for any unused annual fees. Typically the fees are charged upfront, soon after being approved for the card.

Different institutions may have different methods of closing credit card accounts. Some may allow you to do it online or via their app, while others may require you to call them up. Either way, you’ll have to have a zero balance on the card before you can close the account. This includes paying any fees, interest and charges. (Ensure that you are actually closing the account itself, and not just cancelling the card. If the account remains open, you could be charged ongoing fees.)

Potential pros and cons of credit card churning

As with any financial move – particularly high risk ones – there are a lot of potential pitfalls that go hand-in-hand with any possible gain. Below is a list of potential pros and cons you may like to consider, to help you weigh up if credit card churning is for you. (Please note, Canstar is not endorsing this practice, and this is general information only.)

Potential pros of credit card churning

Potential benefits of credit card churning could include:

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 there are terms and conditions of the deal that must be met.)
Potentially help build credit score: If you take up a credit card and pay off the balance regularly, this may help to build a positive credit score (keeping in mind that any missed payments could negatively impact your credit score. It’s important to weigh this perceived potential pro up against the risks).
Learning about different financial institutions: Credit card churning means that you will come into contact with a lot of different credit providers. This will mean that you will be able to see the pros and cons of being their customer. You may find that you decide to stay with a financial institution, based on your experience. You’ll 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

There are a range of potential disadvantages of credit card churning.

Very high financial risk:

As mentioned above, credit card churning is a very high risk strategy.

Requires high level of financial literacy:

As it is such a high risk strategy, credit card churning requires a person to have a very high level 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 finite detail, to avoid any possible pitfalls.

Potential to create debt spiral:

If something goes wrong, it could leave the churner with large debts that incur a high rate of interest every month. This would create a ‘debt spiral’, where debt increases quicker than a person is able to pay it off, due to cumulative interest charges. Credit cards typically come with higher interest rates than other types of credit.

Potential to negatively impact credit score and future loan applications:

Successive applications and rejections of credit applications could negatively impact 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. This could negatively impact 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 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 is noted here as a possible risk due to the high level of social media chatter on the subject.)

Need a good credit score:

To enable you 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.

Cover image source: Reshetnikov_art/Shutterstock.com

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This article was reviewed by our Editor-in-Chief Nina Rinella before it was updated, as part of our fact-checking process.

Amanda Horswill

Former Deputy Editor, Canstar

A journalist for more than two decades, Amanda Horswill has reported on a galaxy of subjects, including property, lifestyle, hyper-local news, data journalism, the Arts and careers.

She’s served as the Editor of Brisbane News, Deputy Features Editor for The Sunday Mail, Deputy Editor – Digital at Quest Community News, and a host of other senior positions at News Corp, prior to joining Australia’s biggest financial comparison website, Canstar.

Amanda is fascinated with the ever-changing world of finance. A passionate believer in the motto “knowledge is power”, she strives to translate the news into practical information that will help readers make informed decisions about their future. While at Canstar, her work has been regularly referenced by publishers such as the Sydney Morning Herald , The Age, The New Daily and Yahoo Finance.

Amanda holds a Bachelor of Arts (Journalism, Media Studies and Production, and Public Relations) and a Graduate Certificate in Editing and Publishing, from the University of Southern Queensland.

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