How credit card churning works

As a frequent flyer, I've earned my fair share of points with credit card sign up bonuses. And when done responsibly, credit card churning can unlock aspirational, high-end travel experiences that make travelling much more fun.

But churning is not risk-free, and it's important to understand the ins and outs of the practice before diving in. Read on for more details.

What is credit card churning?

Credit card churning is the practice of applying for a card, getting approved, hitting a specific spending target to earn a generous welcome bonus, and then cancelling the card before incurring the next annual fee. This cycle is then repeated to maximise rewards.

Churning credit cards, a strategy once the preserve of savvy points hackers, has been mainstreamed in large part thanks to YouTubers, travel influencers, and bloggers. If you've seen a Business or First Class flight review on social media, there's a good chance it was booked using points from a credit card bonus (unless the airline gave it to them for free).

However, it is important to understand the potential drawbacks, be responsible, and stay within the rules. For example, if you are planning on buying a house, credit card churning is probably best avoided, at least until that transaction has been completed.

Is it legal to churn credit cards?

Credit card churning is legal in Australia, but banks do not encourage the practice. They do this by rate-limiting access to sign up bonuses. For example, after cancelling a credit card with a bank, you may have to wait 12 - 24 months before you can apply for another card with them and be eligible for the sign up bonus.

Types of credit cards that can be churned

There is more to churning than chasing points, although travel hacking is what it's most associated with.

• Rewards points. Trigger a lucrative sign-up bonus of rewards points by hitting a spending target and then cancelling before the annual fees kick in.
• Cashback. You can earn a significant amount of cashback by churning offers, but it's common for there to be restrictions on how the cashback can be used.
• Interest-free balance transfers. Transfer debt from your existing card to one that's interest-free. Keep making payments. When the introductory period ends, apply for another credit card and balance transfer whatever debt remains. Close your old card (or leave it open).
• Interest-free purchases. Pay no interest on purchases for the first few months (6 is typical). Cancel when the introductory rate period ends and apply for another.

How to churn credit cards

Credit card churning is a relatively simple process when you follow the basic step-by-step process and stick to applying for the cards you are eligible for.

1. Identify the best credit card sign up bonuses. Australian banks and credit card issuers regularly offer generous sign-up bonuses to entice new customers, but avoid the temptation of applying for a card with minimum requirements you are unlikely to be approved for.
2. Check you are eligible. If you have had a card with the bank before, has enough time passed? Check your credit score is good enough and that your income is higher than the minimum required. If it is a business credit card, you should be able to show more than the minimum required revenue on your accounts.
3. Trigger the bonus. After applying, you'll need to trigger the bonus. This typically means spending a certain amount within a specified period of time. This may be a total amount or an amount per month. Ensure you are clear about the terms, so you don't miss out.
4. Cancel. Once the points have been deposited in your account, you can cancel the card before the annual fee kicks in or keep the account open if you benefit from it.
5. Look for the next opportunity. This will probably be with another card with a different bank because the banks limit eligibility to bonus points.
6. Do it all again. Once you decide what to do next, ensure you still meet the next card's minimum criteria and that you are eligible for the bonus points.

Maximising rewards

• Do you want points, cash, or an intro rate? Not every sign up bonus is the same, with banks offering bonus points, cash, travel vouchers, and introductory interest-rate balance transfers. Research what's on offer and choose the type of bonus that aligns with your goals.
• Choose a suitable rewards program. If you mostly fly with or have status with Qantas or oneworld, ask yourself if it is worth going through the hassle to earn Velocity Points.
• Using a points booster. Some programs offer transfer bonuses, for example, Membership Rewards to Qantas Frequent Flyer. If you trigger the sign up bonus and leave the points in your account, you could use the booster to get 20% more for doing nothing. The catch is that the specifics — release dates and how many extra points you'd get — are unknown, but 20% extra is roughly what you can expect based on previous offers.

Risks and drawbacks

Churning through credit cards can be very beneficial, but it's not without risks, some of which can have a lasting impact.

Credit card churning and your credit score

Applying for multiple credit cards can negatively impact your credit score if you make several applications within a short time, even if you are approved. Getting declined for a credit card can detrimentally impact your credit score, making it more difficult to get approved in the future. That's why it is extremely important to monitor your credit score regularly if you are churning cards. If you notice a negative change, consider giving your score time to improve before submitting your next application.

Building debt

With the allure of earning rewards points, it can be easy to overspend and rack up debt. Things can get serious quickly if your financial situation changes, for example, if you lose a contract or job. In a situation like this, it is easy to convince yourself that it's okay not to pay off the account for a month or two until your finances improve. But this can be very costly in the long run. Not only does this get you into debt, but the interest payments can quickly negate the value of the sign up bonus. Churning is not for you if you find yourself in this position.

Incurring fees

Keeping track of a couple of credit card accounts is not very difficult. But it can get overwhelming if you have several open accounts with payments coming out throughout the month. It's easy to miss payments, incur late fees, or simply overlook an upcoming annual fee for a card you don't need.

Example churning timeline

Here's how a churner might approach a year.

January

Offer comparison. Begins the year by researching the best frequent flyer credit cards. Identifies a card offering a 50,000 Qantas Points bonus with a $3,000 minimum spend over three months. This is attractive since it doesn't require spending more than normal — and the bonus is significant.

February

Application and approval. Starts using the card for all regular expenses to meet the minimum spend as soon as it has been activated.

April

Bonus achieved. Successfully meets the $3,000 minimum spend requirement and 50,000 Qantas Points are awarded.

May

Redemption. Uses the accumulated Qantas Points for a domestic Sydney - Melbourne return flight in Economy Class. It's far from the most glamorous of redemptions, but the booking was last minute and worked out much cheaper than paying cash.

June

Research for another card. A different bank are offering a 75,000 Qantas Points sign up bonus with a $4,000 minimum spend over four months.

July

Applies for the new card and gets approved. Begins the process of meeting the new minimum spend for the second Qantas Points bonus. Again, no unusual spending required.

November

Second bonus achieved. 75,000 Qantas Points deposited.

December

Second redemption. Redeems a chunk of the accumulated Qantas Points for an upgrade on an international flight to Tokyo with JAL, relishing a sublime Business Class experience.

Card cancellation. Cancels the first card to avoid the upcoming annual fee, but decides to keep the second because it has airport lounge passes and a high earn rate.

Is credit card churning worth it?

Credit card churning is certainly not for everyone. Opinions vary on whether credit card points truly offer value.

For example, if you have a business rewards credit card with a solid earn rate and can use it to pay for your business expenses, you can earn so many points that churning would make very little difference. For the rest of us, churning can open up travel opportunities that would otherwise be unaffordable — when managed properly.

FAQs

Can I apply for multiple credit cards at the same time?

Applying for multiple credit cards simultaneously or within a short period of time can negatively impact your credit score. Space out applications and monitor your credit score regularly to protect it and, therefore, your ability to get approved for credit.

Can I earn rewards on balance transfers or cash advances?

No. Balance transfers and cash advances do not earn points or cash back.

Will cancelling a credit card hurt my credit score?

Cancelling a credit card can have a negative impact on your credit score, especially if it means you will have a higher credit utilisation ratio.