"Money is the sign of liberty. To curse money is to curse liberty - to curse life, which is nothing, if it be not free." - Gourmont

Credit Card Churning – What is it? Is it ethical?

By , July 29th, 2015 | No Comments

credit card churning ethics

Credit card churning is the process of signup up for credit cards, reaping the signup incentives, and then discontinuing use.

Doing this usually requires high spending, lots of planning, and organizational skills. Most cards typically offer signup bonuses to those who spend a certain amount in a certain period of time. Credit card companies offer these incentives so big spenders will choose their credit card. The idea is that sure, the company has to pay a high bonus, but eventually the consumer will begin paying interest. The company should win in the end Рas long as the cardholder continues to use the card.

With credit card churning, both parties take a risk. Credit card companies may get someone who just takes the bonus and then puts the card in a junk drawer. Or, the consumer may end up spending more on interest/purchases just to reap the reward than the reward was ever worth in the first place. Again, both parties take a risk.

Credit Card Churning from a Credit Card Company’s Perspective

A recent article from¬†Fox Business suggests that credit card companies disapprove of churning. Recently, American Express revealed they will no longer be giving bonuses to all new card holders. The only people receiving bonuses will be those who have¬†never had¬†a card with American Express. In the past, some people would churn the card each year so they got a new signup bonus each time. The article goes on to say that many other credit card companies will likely follow suit.¬†Ariana Arghandewal runs a very successful rewards blog called PointChaser. Here’s what she thinks about the practice:

The card companies are starting to realize that [as] more people get into this, [it] is not a sustainable model.

I’ve even began seeing contracts that basically say, ‘The deal is off if we think you’re just going to churn our card. Yep, that means if you use the card until you’ve reached the bonus threshold and then stop using it, we have the right to withhold the bonus.’

From a Churner’s Perspective

Some people pay for entire vacations by churning! Surely they rest easy with the practice of credit card churning.

It’s true. Many people see no moral dilemma with credit card churning. And they have good arguments for churning. A quick browse through Reddit shows there are many people who believe churning is ethical. They say it’s no different than buying an item on sale. It’s a promotion. It’s a promotion written into the contract of a credit card – you will receive ‘x’ amount of dollars just for signing up for the card. If you adhere to all rules, who gets hurt?

Your ethics are your own. No one can tell you what’s right.

Ethics aside, is credit card churning worth the hassle?

It depends. The good news is there are many, many blogs out there that are great for keeping track of the latest offers. These sites help you bring in new offers. But don’t forget about the responsibility of actually having the credit card.

To use a credit card for churning, you need to understand what you must do in order to qualify for the bonus. It often entails spending a certain amount of money within a certain time frame – on certain purchases. As mentioned earlier, it takes serious planning and organizational skills. Be careful.

One downfall to credit card churning is that your credit score may suffer. Each time you apply for a credit card, a hard pull usually takes place. A hard pull will knock anywhere from 2-5 points off your score. That doesn’t sound like much. But if you apply for 15 credit cards per year (not out of the ordinary for a hardcore churner) that can damage your credit score by 75 points! This could be the difference between securing¬†a mortgage and continuing to rent for another decade. Keep in mind that all these applications show on a credit report. Churning will certainly raise eyebrows when a lender is reviewing your loan application. Most of the time, these credit inquiries can be easily explained. Other times, like when applying for a loan online, the lender may not give you an opportunity to explain your hobby.

Final Thoughts about Churning Credit Cards

Ethically – it’s up to you. Most credit card companies have not tried to better regulate¬†the practice. As far as going through with it, make sure you’re no being penny wise, pound foolish. Sure, getting hundreds¬†in free money is nice but not at the expense of a lower credit score (if you plan to use credit, that is). It would be unwise to pay higher interest on a mortgage just to claim some rewards.

Churn or don’t churn. It’s up to you.


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