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Ask Credit Card Finder: Can credit card churning lead to declined applications?

Posted: 12 December 2018 12:24 pm
News

Applying for several cards in a short amount of time could make it harder to get approved in the future – even if you have a good credit score.

Hi,

I am getting rejected for credit cards and would like to know why. I like opening up new cards to get bonus frequent flyer points, but I close down the accounts after I receive these points.

So far this year I have opened nine accounts, but closed down four of them. I also pay off each card on time so that I am not charged interest. I just did a credit score check on Finder and it came back as 697 and said "good". So why was my latest application declined?

Thanks,
Bonus hunter

While you do have a credit score that's towards the higher end of the "Good" range, the nine credit card accounts you've already opened this year would be alarm bells to the ears of potential new providers.

What you've been doing, opening accounts to get bonus frequent flyer points and then closing the cards, is actually a known strategy that's popular among frequent flyers around the world. It's referred to as "credit card churning" and can lead to the following, potentially negative details on your credit file:

  • Fluctuating access to credit as your credit limits and accounts change
  • Multiple inquiries from lenders
  • A decrease in your average credit history length (per account)
  • A lack of favourable repayment history, as these details would be removed when you cancel accounts

Over time, these factors could hurt your credit score. But even if that doesn't happen, it's important to understand that churning is frowned upon by credit card providers. This is because it suggests you're unlikely to keep your account open once you've got the bonus points.

Some lenders might also say that opening and closing credit cards in quick succession doesn't show responsible use of the account/s (and card providers are bound by a code for responsible lending). So, if you still want to get a new credit card, I'd suggest waiting at least few months before applying again.

It's also worth considering the other key factors that may have affected your application, including:

  • Your income. While not all cards list a minimum income, credit card providers carefully consider how much you earn before deciding whether or not to approve an application.
  • Your liabilities. Although you've closed four of the nine accounts you opened this year, that still leaves you with five active credit cards, not to mention any other loans, regular bills and day-to-day expenses. These financial responsibilities (including the full credit limits of each card) are weighed against your income when you apply for a new account, so having access to a lot of credit could lower your chances of getting approved when you apply for a new card.
  • The accounts you've closed. This may seem counter-intuitive, but closing those four credit cards earlier in the year could be a red flag for prospective credit card providers. This is because your credit history can show when you applied for the accounts and when you closed them. If they were only active for a few months, it will shorten the average length of your credit history. As a result, providers could come to the conclusion that you are churning accounts to collect points.

Credit card providers rarely give a definitive reason for declining a new application, but all of the above factors can have an impact on the outcome. So, as well as looking at your credit score, check the other details on your credit file to see how they fit with your circumstances. Then, you can compare frequent flyer credit cards and find one that offers you value beyond any sign-up bonus points.

Ask Credit Card Finder is a weekly column written by Finder's credit card expert Amy Bradney-George. All rates and fees are correct at time of publication and we only give general advice.

Do you have a question? Reach out in the comments or speak to someone from our 24/7 customer service team.

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