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Everything You Need to Know About Credit Card Churning
Bonus programs are a great perk in the financial industry. Banks often provide various rewards for credit cardholders to attract more clients. But there is a category of people called churners. What is credit card churning? It is the continuous activity of getting credit cards by seizing an offered sign-up bonus and then closing the account shortly afterward. These clients who open accounts do so only with the purpose of receiving a reward.
Those who churn credit cards have an opportunity to improve their lifestyle significantly if they act reasonably. A typical example – cheaper travel options. Many banks give mileage points as a perk of making a transaction for a particular sum of money within a set limit of time after the account was opened. Overall, travel benefits are offered rather often. Apart from that, decent incentives can be received for purchasing groceries or paying for gas.
The craftiest are those who cash in the received bonuses. For example, they can buy a ticket with reward miles for someone else and get cash for the transaction in return. Even though you can say that it’s a not bad business, churning credit cards requires a good credit history and a reasonable approach. It’s very easy to get carried away and end up in huge financial trouble.
Important Factors About Credit Card Churning
If the question of how to churn credit cards is still on your mind, there are some small details that require your attention. On the whole, the process is simple: apply for a new credit card, receive it, make a hefty purchase, reap the incentives, pay back the debt, close the account, repeat all the steps one more time. Here are some of the things that many people fail to take into consideration.
A Good Credit Score
You’d better keep a good credit score. Otherwise, card churning will become hard to maintain. The main thing here is that your credit history and score must always be tracked. Churning implies the opening of new accounts on a regular basis. Therefore, you will need to qualify for them.
To become aware of your particular situation, check your credit report. It is available for free download once a year. Also, banks and financial apps provide access to the credit score.
Terms and Conditions
Don’t ignore the terms and conditions section while reading the agreement. Not all banks have the same system for rewards and bonuses. Many people often notice only a lucrative bonus – let’s say, 40,000 points as soon as the card is approved. However, such a perk usually comes with serious conditions if you want to qualify for it. It often means a considerable payment within a particular period of time.
Hence, if your financial state leaves much to be desired, applying for such a card is a waste of time and money. The consequences may be far more severe. For example, you can find yourself in deep debt. However, if it happens to you, there is still no need to worry. We at DebtQuest USA are always here to settle your liabilities and help you build a more balanced financial future.
How Does Credit Card Churning Impact Your Credit Score?
The influence of credit card churning on the credit score isn’t necessarily considerable. For instance, if you have an excellent credit history that you’ve kept for a long time, and always repaid all of your debts, signing up for new credit card accounts and closing them shortly afterward might not significantly impact the score.
However, card churning itself is a pretty risky activity and can deal significant damage to your credit history. Here is exactly how it lowers your score:
- The danger is already hidden at the very beginning of the process: at the stage of submitting the application. A credit inquiry accounts for 10% of the score. The information is shown in your report for the next two years. However, it affects your score for only a year.
- The process of opening new credit accounts lowers the average age of all the accounts. This, in turn, may negatively impact the score.
- The score drop may also be a result of closing the account and the amount of total available credit that is used at a certain moment. This happens if you have used up the balance on other cards. Since the number of available credit cards gets lower, your utilization ratio increases. The utilization rate makes up 30% of your overall score.
- Failure to repay the debt is, for sure, one of the most significant things that may decrease the score. It can become the determining factor in terms of accepting or rejecting the new account application. You might be considered as a non-reliable cardholder.
It is important to always keep track of your credit history. Otherwise, you may find your loan application being rejected all of a sudden. For those who have unfortunately found themselves in this position, there are services like Debt Quest. We can help you to handle even the most troublesome situations.
What Are the Underlying Potential Dangers
Although it is rather tempting to reap the benefits and a sign up for the reward program, making it a full-time “job” is dangerous. What are the traps and pitfalls of credit card churning?
- Getting into debt. Please, make sure that there is enough money for you to cover the monthly payments.
- Annual fees. They can result in a hefty sum. Professional churners must know exactly when to close an account to avoid them.
- Risk of being blacklisted. The primary reason for lucrative rewards is to attract new long-term clients. Once you have been spotted as a churner, the bank can blacklist you.
It’s not difficult to churn credit cards. Nevertheless, it requires a reasonable approach and a high level of organization in order to enjoy its benefits. It’s very easy to lose focus and get into a huge debt. We hope that nothing like that will ever happen to you. But remember: We are always here to get you out of financial trouble.