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When you step into the world of travel rewards you will find all kinds of terms you just don’t understand. One of those terms that comes up over and over again, both online and in person, is credit card churning.
Of course, you can probably guess that credit card churning isn’t just about tossing a bunch of credit cards into a big tub and tossing them around. It wouldn’t make sense, even if that’s what it sounds like. So what does churning credit cards really mean?
We will take a look.
First: Protect your credit
Before you start talking about applying for a credit card, especially applying for multiple credit cards, it’s important to take a minute to talk about your credit.
Every time you apply for a credit cardThis affects your credit score in several ways. First of all, adding a new inquiry to your credit report can drop a few points on your credit rating. Second, if you are approved, the new credit given to you will increase your total available credit, thereby changing your use of credit and increase your score. Finally, the new card account you are approved for will decrease the average age of your accounts, which will decrease your score.
Overall, considering all of these factors, your credit score is likely to drop slightly with each card you apply. It is important to know this and plan for it, especially if you are hoping to get a mortgage, mortgage refinance, or car loan in the near future.
Your credit is one of your most important assets, and maintaining a good credit rating is one of the best things you can do to make your financial life easier. Make sure you think about both the positives and the negatives before taking any action that might affect your score.
Credit card churning definitions
All of the following scenarios are now considered credit cards, but the use of the term has changed over time.
Multiples of the same cards
Originally, the term credit card churning was used to refer to a repeated request for the same type of credit card. This is done primarily to collect a large welcome bonus available on a card and then cancel the card once that bonus has been earned.
The process involves applying for a credit card, getting approved, hitting minimum spending within a set amount of time, earning a big welcome bonus, and canceling the card before the next annual fee. Once this is done, the process is simply repeated over and over again, hence the term churning.
Several card requests at once
As time went on and people wanted to earn even more types of rewards, credit card churning started to take on a second meaning. This second sense is also a repetitive process, just done on a larger scale.
Instead of just getting multiples of the same card, churning out credit cards can also mean applying for multiple new credit cards at the same time and repeating this multiple application process every few months. In miles and points parlance, this is also known as App-o-rama.
When the credit card turns this way, an applicant requests a batch of credit cards (usually 3 or more) on the same day. Then, three months later, the applicant requests another batch of different cards. This is repeated as long as there are new cards available and the applicant can continue to cover the minimum expenses required to earn the bonus on each card.
Churning out credit cards like this allows an individual to earn several big welcome bonuses every few months and quickly accumulates huge amounts of miles, points and cash back rewards.
Banking rules preventing churning
As you can imagine, the banks that issue credit cards aren’t the biggest fans of the credit card churn. To them, churning is sort of a dirty word. The most profitable credit card customers get a card, ignore the extra perks, have a balance, and pay interest and annual fees for many years.
When churning out credit cards, the goal is often the exact opposite. You get a new card, maximize as many benefits as possible, pay off your balance each month, cancel before the annual fee is due again, and move on to the next card. Since credit card churns pay no interest and minimal fees, they are among the bank’s least profitable customers. Banks always get the transaction (or sweep) fees when you make a charge, but depending on how often the card is used after getting the welcome bonus, it may not mean much.
As a result, banks have come up with several ways to discourage credit card churning. Advertisers are encouraged not to talk about the topic. Some sites that have affiliate relationships with advertisers may even be discouraged from using churning language when discussing specific products.
On the consumer side, banks have instituted many rules over the years to prevent credit card churning in its two forms. It’s a good idea to familiarize yourself with these rules before applying for a new card, even if you’re not shuffling credit cards. You don’t want to waste an application and the credit investigation it requires on a card you won’t be approved for.
Prevent the same cards
Years ago, it was possible to get a new credit card of the same type once a month or every two months. For some cards, you might actually be approved for multiples of the same card on the same day, by opening three or more accounts at once. Those days have passed. In most cases, banks now have rules in place to prevent people from doing this.
Here are some examples of these rules:
- American Express Lifetime Limit: On the majority of its credit card applications, Amex has added wording that states that an applicant will not be allowed to earn a welcome bonus more than once in their lifetime for a particular type of card.
- Chase Sapphire Rule at 48 months: Chase has a rule on his family’s claims for Sapphire cards that says an applicant cannot earn a welcome bonus on any of the Sapphire cards until 48 months have passed since the last bonus earned on a Sapphire card.
- Citi 24 month rule: Most of the cards offered by Citi now have an in-app rule that states that you cannot get a new card if you have opened or closed a credit card in the same card family in the past 24 months.
Too many applications
Banks have also added rules, some written and some unwritten, to limit the number of cards you can get approved for in a certain amount of time. These limits can apply to new cards from that particular bank or they can also apply to all new cards from any bank.
Here are some examples of these rules:
- 5/24 hunting rule: If you have opened 5 or more credit cards with an issuer in the past 24 months, you will not be approved for a new credit card with Chase.
- American Express Rule 5/90: You can only apply for one new credit card per 5 day period and only two new cards per 90 day period.
- Citi 8/65/95 rule: For personal cards, you cannot apply for more than one new Citi credit card every 8 days and no more than two new cards in a 65-day window. For business cards, you can only request one new card every 95 days.
Banks often send targeted credit card offers to potential customers. These offers may be sent by post, email, through groups to which you belong, or be advertised on a particular site that you visit. Sometimes these targeted offers do not include the limiting language of the standard application for that product.
A targeted offer may come with a higher welcome bonus than the standard offer for a card, or it may allow you to get a card for which you would not otherwise be eligible. With American Express, for example, targeted offers often don’t include the once-per-life limitation. If you are lucky enough to receive any of these offers, you can apply for and be approved for a card even if you have already had it.
However, it is important to pay attention to targeted offers. You need to make sure that you are the person or are part of the target group. Banks may not approve you for a card if you try to use someone else’s targeted offer. Additionally, banks can cancel your account and forfeit (also known as salvage) your points if they determine that you applied for an offer that was not intended for you.
In extreme cases, banks or loyalty programs have been known to close all accounts for some people. In the past year, for example, American Airlines closed the frequent flyer accounts of many of its members who had applied for multiple Citi AAdvantage cards in recent years. They gave no notice, allowed no explanation, closed accounts and confiscated miles. Some customers have lost hundreds of thousands of miles they’ve earned, even miles they’ve earned flying.
The term credit card churning has been used in the travel rewards community for many years, although its meaning has changed over time. At this point, churning credit cards can have one of two meanings and you’ll hear it regularly used both ways.
In some respect, churning out credit cards can mean asking for the same credit card over and over again. In another, it could mean applying for a bunch of different credit cards every few months and going through them after earning the welcome bonuses.
Whichever way you hear the term used, the goal of churning credit cards is essentially the same: to earn as many miles, points, or cash back bonuses as possible, and do it as quickly as possible.
As banks instituted rules designed to restrict or block credit card churn in both of its forms, applicants have had to slow down their churn and rely on things like targeted offers and brand new cards to keep going. earn bonuses.
You should also remember that you don’t own your miles and points; banks do. Banks can revoke your miles and points at their sole discretion if they decide, rightly or wrongly, that you have broken the rules.
Churning credit cards is still possible today, but applicants need to be much more strategic about which cards they apply for and when they make those applications if they are to continue churning for years to come.