Have you heard of credit card churning? It’s a process people use to open multiple credit card accounts in a short span of time, collect new customer bonuses such as extra miles or cash back, then close the cards shortly thereafter and start the process all over again. Those who practice churning swear by it as a way to take advantage of perks. But it’s not quite that simple. Churning can get out of hand quickly and end up harming a person’s credit much more than it helps. Let’s look at some details of credit card churning.

Just How Does It Work, Exactly?

Credit card churning works as follows:

• Apply for several credit cards with generous bonus offers
• Charge the minimum amount required to receive the bonus
• Close the cards after receiving the bonus and before having to pay the annual fee
• Repeat the process again and again

What are the Advantages

The advantages of credit card churning are the bonuses consumers receive in the form of travel miles, cash back and other perks. At first glance, it can seem like a lucrative hobby or side hustle. But it takes many hours of research to find and apply for these deals, plus extra time to maintain and juggle the multiple credit card accounts. If you break it down mathematically, you may end up only making around $10-$12 an hour for your time.

Is Credit Card Churning Legal?

As long as customers are using their real name, Social Security number, and financial information to apply for the accounts, the practice is legal. However, many banks and credit card issuers are catching on to it and are implementing limitations to curb it. For example, Chase has the “5/24 Rule” which states that consumers who have been approved for five or more credit cards from any bank in a 24-month period will not be approved for any Chase credit cards. Citibank, Bank of America and American Express also have safeguards in place to limit churning.

How Does Churning Affect Credit?

Credit card churning can have negative, potentially disastrous, effects on a consumer’s credit report and score. For one, credit scores dip each time there is a hard pull of the credit report, which is required when opening most new credit cards.

Plus, opening several credit cards in a short span of time can look like “credit chasing” and make it appear as though a consumer is in financial trouble. Other lenders  will view this as a potential red flag.

A consumer’s credit age also takes a hit when credit card churning, since they open and close accounts in quick succession. But perhaps the biggest risk is missing payments. Juggling multiple due dates and payment amounts can lead to late or missing payments. Since payment history makes up the largest portion of your credit score, even one late payment can be the start of a downward spiral.

Recovering from Credit Card Churning

If you tried credit card churning and things got out of control — maybe you charged more than you planned or missed a few payments — we can help. Credit counseling will give you the big picture view of where you stand with all your accounts and give you an action plan to get you back on track financially. You can talk to a certified counselor one-on-one or take our self-guided, online counseling.