How credit card churning affects your credit score

The rewards strategy can be lucrative but poses some danger to your credit score. (iStock)

Credit cards can provide an excellent way to build credit, and many cards offer sign-up bonuses and rewards to encourage you to apply and use one regularly. Some consumers take advantage of these promotions, shuffling through cards quickly to earn their welcome bonuses.

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If you’ve ever considered using this strategy, called credit card churning, to earn points, miles or cash back quickly, it’s important to understand how the process can affect your credit score.

What is credit card churning?

Credit card churning involves repeatedly applying for credit cards to earn their sign-up bonuses, which can be worth hundreds of dollars.

To qualify for these bonuses, you typically have to spend a certain amount within the first three months of opening the account. Once you receive the rewards, you can move onto the next card.

Is credit card churning worth it?

Credit card churning is a high-risk strategy to rack up credit card rewards, and there are several potential pitfalls to know before you start.

First, opening multiple credit accounts in a short period can make you look like a risky borrower, and the inquiries can impact your ability to get approved for credit in the future. Plus, every new account lowers the average age of your credit accounts, which impacts your length of credit history.

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Also, the more credit cards you have, the more challenging it can be to keep track of each account. If you miss a payment by 30 days or more, it’ll end up on your credit report and can significantly damage your credit score.

Finally, if you’ve struggled with credit card debt in the past, having multiple credit cards can be tempting and you may rack up unnecessary debt.

That said, in the right situation, credit card churning can have many benefits. Here are the primary factors to consider to determine if the strategy is right for you:

  • Credit score. If you have great credit, credit inquiries and your average age of accounts will still have an impact on your credit score, but it won’t be as pronounced. And as long as you practice other good credit behaviors, you can still maintain a solid credit history.
  • Disposable income. To take full advantage of credit card rewards, it’s essential to pay off your balance on time and in full every month. Interest charges can be high with rewards credit cards, and any interest you pay eats into the value you’re getting from the rewards. If you have disposable income, you’ll have an easier time spending only what you can afford to pay off.
  • Time and effort. Finding the right credit cards to apply for, keeping track of your progress on sign-up bonuses and managing all of your accounts can be challenging. Have a plan in place before you start churning for how you’re going to stay organized.

If you feel like credit card churning is the right strategy for you, start slowly to avoid overdoing it and getting overwhelmed.

How does credit card churning affect your credit score?

It’s difficult to say exactly how much churning can impact your credit score because there are several factors that go into calculating your score. Credit inquiries and the average age of accounts are factors in your credit score, but they’re not nearly as important as your payment history and how much you owe on your cards.

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As a result, it’s possible for your credit score to increase over time with credit card churning, as long as you use credit responsibly overall. That includes doing the following:

  • Space out credit card applications, so you don’t have too many in a short period. Note that credit inquiries remain on your credit report for 24 months and affect your FICO credit score for 12 months.
  • Pay your bills on time and in full every month; consider setting up automatic payments, so you don’t accidentally miss one.
  • Keep your credit utilization—your balance divided by your credit limit—low on all of your credit card accounts. While many credit experts recommend keeping it below 30 percent, the lower, the better.

As you practice these and other good credit habits, you’ll be able to take advantage of all the benefits credit card rewards have to offer without your credit score suffering.