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Churning Cards

by Jason Steele

Churning is not just for butter anymore, it is a strategy for canceling reward cards and then re-applying for the purpose of accumulating multiple sign up bonuses. It is not without its risks, and rewards.

The Rewards

Sign up bonuses can be quite valuable in and of themselves. I have received many cards applications with offers of up to 25,000 miles as a sign up bonus. The thought had always occurred to me: What if I could sign up, cancel the card, and then sign up again? According to my research, it is possible, but only with some cards. For example, Citibank, which offers and American Airlines affiliate card, appears to allow you to cancel and reapply eight weeks later. Chase, partners with Continental, United, and British Airways seems to allow reapplications after only 6 weeks. American Express appears to be on to this loophole, and has inserted language into it’s agreements reducing or eliminating sign up bonuses to previous holders of each brand of card.

The Risks

The most obvious risk is that to your credit for opening and closing so many cards. Since the credit scoring formulas are proprietary, there is no way to accurately quantify this risk. Some people report slight drops in their credit score, some report small but significant impact, while other find none at all. There are just too many factors in a credit score to say definitively what will happen to you. The one thing that is for sure is that this strategy is only for people with excellent credit scores who won’t be adversely effected by a small drop. Also, you probably want to do this slowly while monitoring your credit score. I wouldn’t recommend this if you are about to try to qualify for a new home. The last think that you want is to loose out on a home loan, just to make 20,000 miles!

Other Important Tactics

I know it might be obvious, but don’t cancel the card until you have your bonus. If the bonus is in you reward card’s proprietary point system, make sure you don’t loose the bonus when your card is canceled. If you are able to transfer points from a proprietary system to a third party system such as an airline or hotel loyalty program, make sure to confirm the transfer before canceling.

Read the fine print, as some card agreements have clauses prohibiting churning and may even have provisions for penalizing you at a later date. They may say that they can revoke your bonus miles or charge you for them in the future if they do an audit. You don’t want that question hanging over you when you are redeeming miles.

Only attempt this if you are a detail oriented person. In the past, when I have held more than a few credit cards, it was an invitation to make mistakes. Every so often, I would accidentally pay the amount of one bill to the correct address of a different card. When I only have a few cards, I know when the payments are due and can account for that when I am on a long trip. The more cards you have, the more due dates you have to remember, and it is only a matter of time until you make a late or incorrect payment.

Where I Stand

In my previous attempts at churning, I have had situations where the bank only informs me at a latter date that they will not give me the bonus. In some situations, it was because I had held their card years ago. On other occasions, I have successfully received a sign up bonus from a card that I had held in the past, so you never know. On the other hand, everything that I have heard about credit scoring says that when you open and close accounts within one year, your score may suffer. At this point, I am not willing to risk my credit score and increase my monthly admistrative burden on the hope that I will be able to profitably churn cards.

In the future, I might consider it, but only if the rewards were great, and I had some very accurate information about the feasability of this strategy with a particular card.

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