Credit card issuers like American Express, Chase, Barclay, and Citi, all offer great and tempting credit card Welcome offers. (You can always find great credit card offers on this page.) This is why point churning was born. There are thousands of people that are smartly (Yes, I call them smart people) taking advantage of these offers and are applying for credit cards just in order to earn the bonuses. You can get free vacations and even earn thousands of dollars in credit card bonuses just by applying for credit cards and receiving their bonuses. For more information on point churning, you can visit Doctor of Credit or Frequent Miler. But in this post I want to address a question that I get asked a lot. Will rewards churning affect my credit?
Applying For a Few Credit Cards in a Short Period of Time
Point churners usually apply for a few credit cards in a short period of time, so they can receive bonuses from several different credit card offers. This may affect your credit because: a) every time you apply for a credit card a credit inquiry is done, which has a short and light effect on your credit and, b) if you do get approved you will have a couple of new accounts on your credit report. This effect may be a little more severe depending on how many accounts you have and how many of them are new. But all this is only a short term affects, so as long as you’re not planning to buy a house or lease a car etc., in the next 6 months then you don’t need to worry about this.
For more information read How Much Will Opening a New Credit Card Affect My Credit Score?.
Having High Balances
In order to be eligible for a sign up bonus, depending on the offer, you may need to swipe a couple of thousand dollars. Having a balance of higher then 50% of your credit line is very damaging for your credit score. Utilization is the second to the biggest factor in the Fico scoring model, so a high balance can have a significant effect on your credit score. This effect is also only going to affect you for as long as you have the balance. As soon as it is paid off your score will jump right back up.
I also want to point out that you can pay the balance before the bank reports it to the credit bureau, (the date the bank reports is usually the closing date but you can find a full list here) like this the bank will not report your high balance because it was already paid off.
Closing the Credit Cards
Many of the high Welcome offers credit cards also have a high annual fee like the Chase Sapphire Reserve ($450) or the Amex Platinum ($550). Even if it is worth keeping the card open for the first year, since you’re getting a good Welcome bonus, it might not be worth keeping the card open for year number two. So if you’re only opening a credit card in order to receive the bonus then you will keep on closing credit cards.
There is an existing theory that scoring models look at your average age of history, which means that even if you have a card that is 10 years old but you go ahead and open 5 more cards and they are only one year old then your average age of history will only be 2.5 years. I personally never found that to be true so I don’t see that as a problem at all. But you do want to make sure that that you have at least three credit cards that don’t have an annual fee, (you can find a few good ones here) so that you will build solid history bases on these three cards without ever feeling a pressure to close them. About the rest of your credit cards, you don’t need to be concerned about closing them. (Read also: Does Closing A Credit Card Hurt Your Credit?)
There is also an option on most cards to downgrade or product change them to a lower tier credit card that does not have an annual fee. By doing that you will still stay with all of the history from your old card, but still not have to pay the annual fee.
As long as you’re not looking to buy a house, lease a car, or need a perfect credit score in the near future, then point churning may be a lot of fun and even very money making! But if you’re going to need a perfect credit score in the near future (about six months) then you may want to hold off from point churning as it can cause some slight pain to your credit score.
If you have any questions about this post then feel free to leave a comment or email me at firstname.lastname@example.org
Enjoy your free vacations!!!