In the 10+ years that I’ve been involved in the miles and points community, the single most important strategy that has allowed me to amass millions of points in various loyalty programs was through ‘churning.’ This practice involves strategically opening and closing credit card accounts to earn repeat sign-up bonuses (SUB) rather than solely relying on organic cashflow. Let’s explore the concept of credit card churning and important considerations to keep in mind while implementing this strategy.
Topics Covered
Understanding Churning
As I have written about before in this post and will continue to repeat... miles and points are a form of currency. Remember that. It costs money for banks and loyalty programs to offer it, and it costs you money to accrue it. Similar to the investing mantra of buy low, sell high, you want to earn these points with the lowest cost to you as possible and redeem them for as high of a value as it makes sense for you. There are a few ways to 'lower the cost basis' of your points, and churning is the one hiding in plain sight.
Sign-Up Bonuses
Banks, like retail businesses, offer limited-time promotions where they give you a significantly higher SUB on popular credit cards. Just as the savvy shopper waits for the Black Friday or Boxing Day sales, you can anticipate many banks will release periodically. So it helps to get familiar with a few of the popular cards in the game, what the historical high offers have been, etc. to time your applications accordingly.
The Fine Print
While credit card churning can be a lucrative strategy for maximizing miles and points, it's important for you to be aware of common terms and conditions (T&Cs) associated with SUB. Some key considerations include:
Tiered Sign-up Bonuses: Banks are very much aware of hobbyists like us, and we have started seeing some changes to how sign-up bonuses are awarded in recent years to deter rapid churning. Some examples of these changes are SUB that are given monthly over 12 months rather than as a lump sum for meeting the minimum spend requirement.
Anniversary Bonuses: Similarly, some cards offer an incentive to keep cards open for more than 1-year and give you a specified number of points anywhere from 2-4 months after renewing your card.
Eligibility Restrictions: This is probably the most important section of the fine print as it pertains to churning. Some banks impose eligibility restrictions on repeat sign-up bonuses, such as specifying a timeline for when an individual can receive a bonus for the same card product.
Gaming & Churning: Some loyalty programs like Aeroplan now have specified wording in the T&Cs to limit churning practices and receiving repeat sign-up bonuses. The degree to which these T&Cs are enforced is a subject of constant debate.
As you will see over time, there is a spectrum of risk tolerances in this hobby, with some that are always pushing the limits of what is ‘allowed’ and looking for gaps in these T&Cs. There are those with a lower risk tolerance that will maybe go through 1-2 credit cards a year. So you need to assess your own risk tolerance and understand the T&Cs to keep this a sustainable practice.
Credit Score Impact
One of the frequently asked questions is how churning impacts credit score. Opening and closing multiple credit card accounts within a short period can potentially impact an individual's credit score. However, it is a common misconception that the mere act of opening credit cards will have devastating impacts on one’s creditworthiness, as a credit score is also determined by average credit history length (which is why it is advisable to keep one or two credit cards you’ve had the longest) and credit utilization ratio (percentage of available credit that you are using).
Lenders scrutinize credit histories when evaluating loan applications, and a history of frequent credit card applications and closures may raise red flags. If you have plans to apply for major loans such as mortgages in the near future, it is advisable to pause or slow down your churning activity several months before applying for a mortgage.
Churners should be mindful of the potential consequences to their credit profile and consider strategies for minimizing negative effects, such as spacing out applications and maintaining a healthy credit utilization ratio.
Conclusion
Churning is one of the most important tools for maximizing miles and points. It is an ever-evolving landscape with regular revisions from banks and loyalty programs to deter people from rampant abuse of their currencies. So it is important to recognize the fine print when venturing into the hobby, so you can stay within the boundaries. As with any financial strategy, it's important for churners to approach credit card churning responsibly and be mindful of your financial health and credit profile.
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