Does Churning Affect Your Credit Score?

If you’re constantly receiving tempting credit card offers, you might be wondering if there’s some way you can tap into all of the sign-up bonuses offered by major card issuers.

In fact, there is a whole subculture of people who practice “credit card churning.” This means that they repeatedly signup for cards and use them long enough to get the advertised perks before canceling.

Is credit card churning a good idea, though? Does churning affect your credit score?

Let’s take a look at what you need to know.

What Is Credit Card Churning?

Credit card churners make a hobby of benefitting from the various credit card sign-up offers that serve to entice consumers into opening a credit account. In short, the process works like this:

  • You identify a number of credit cards that offer rewards you’re interested in and a generous welcome bonus that gives you a bunch of those rewards right off the bat
  • You apply for those cards and then spend enough money to get the bonus miles or points
  • You stop using the credit cards and cancel the accounts
  • Repeat

If you are diligent in this process, you can make a killing when it comes to cash back, hotel stays, airline miles, and other rewards. However, if you aren’t careful the process can end up burning you in a number of different ways. One way that credit card churning can negatively impact your finances is if you let it affect your credit score.

Check out this article to learn more about the pros and cons of credit card churning.

Does Churning Affect Your Credit Score?

If you aren’t careful, credit card churning can have a negative effect on your credit scores. This is one of the major risks you run when you work to earn cashback and points using the churning method.

The Number of Recent Applications

One of the ways that credit card churning can negatively impact your credit is due to the fact that a small percentage of your credit scores is determined by how many new credit accounts you’ve recently opened.

When you submit a number of credit card applications in a small period of time, it can suggest to lenders that you are a risky bet due to being in financial distress. For this reason, it’s advised that you wait six months between your applications.

However, people that have great credit might not need to wait quite as long as people with less than ideal credit.

Credit Utilization

A bigger chunk of your credit score relies on your credit utilization ratio. This is a number that looks at how much credit you are using out of your available credit.

Credit card churning can cause your credit utilization ratio to lean less favorable if you’re racking up debt in order to score welcome bonuses. However, you are likely to have a higher overall credit capacity if you have multiple credit cards, which can give you a higher potential credit utilization ratio so long as you’re not carrying large balances and you’re paying off your bills in full every month.

Length of Credit History

It can also have a negative impact on your credit for you to close credit card. Both your average age of accounts and credit utilization can be effected by closing down cards after you’ve received the sign-up offer.

It is generally advised that you don’t close down credit card accounts if you can avoid it. However, if there is an annual fee it might be better to get rid of unused credit cards.

You might also ask the credit issuer to downgrade your credit card to a product that doesn’t have an annual fee. So long as they let you keep the same card number, then the credit line and history stay intact.

This is a strategy known as a “product change” and is commonly used by credit card churners.

Payment History

Another way that your credit score can be dinged by credit card churning is if you let the whole process get away from you. It can be complicated and confusing to juggle so many credit cards at once, and if you forget to make a payment it can definitely impact your score. After all, the biggest factor in your credit scores is on-time payments.

If you’re focused on earning as many rewards as possible by spending money on many cards, you increase the risk that you’ll forget to pay a bill on its due date. It can help to set up auto-payments and alerts, but its surprisingly easy to get burned in this way even if you’re being super careful.

Credit Card Churning: A Dangerous Game

Engaging in credit card churning can be very tempting indeed. After all, who doesn’t want to effortlessly rack up airline miles for that big vacation or receive a lump of cold hard cash for hardly doing anything at all?

However, it is definitely worth being extremely careful when it comes to this practice. There are a number of ways that credit card churning can leave you in a worse position than you started.

Asking questions like “does churning affect your credit score?” is the first step to thoughtlessly jumping into this sometimes too-good-to-be-true scheme. The more you learn about the process before you begin, the better chance you have of not getting burned.

Are you looking for more valuable resources on how to use credit cards to boost your financial health? If so, be sure to check out our expansive library of articles.

Kelly Brown