The goal of credit card churning is to earn a lot of points in a short amount of time, while also keeping your credit card costs down. In theory, as long as you meet the bonus point spend requirements, pay off the balance in full and cancel the card, you can avoid or limit the interest charges and annual fees.
But credit card churning in Australia can impact your credit score, with each card you apply for leaving a hard enquiry on your credit file. Some bonus point offers also have restrictions around who is eligible, especially if you've had a card with the same provider in the past 12 to 18 months. So, before deciding if you want to collect points by credit card churning, let's take a look at the finer details of this strategy.
How does credit card churning work?
While people who have successfully churned credit cards to earn more points usually have their own tips and tricks on what works, they usually follow a version of the steps below:
- Compare credit card offers. Typically, you would start by looking at the current reward and frequent flyer offers on the market. This helps you find bonus point offers that suit your rewards goals. As well as the bonus point spending requirements, most people that churn credit cards also look for offers that include a $0 annual fee in the first year.
- Apply for the card. Once you've chosen a card, carefully read through the eligibility requirements, including what it means to be a "new customer" (more on that below). It can also be a good idea to look at your credit score before you apply, as the more competitive offers tend to require higher scores. After that, you can usually apply online in around 10–20 minutes and if you're approved, you should get your card within 1–2 weeks.
- Set calendar reminders. Credit card churning requires precise timing to get the bonus points and avoid extra costs. So, most people using this strategy recommend that you set three different calendar reminders: one for the minimum spending deadline, one for your repayment due date/s and one for your card's anniversary (which is when the annual fee is charged).
- Meet the bonus point spending requirements. While spend requirements can vary between offers, people experienced at credit card churning usually go for offers that have a straightforward requirement, such as spending $3,000 on eligible purchases in the first 3 months. This is because more complicated requirements can be time-consuming and increase the risk of interest charges or other costs.
- Pay off the card's balance. To avoid interest charges, you would need to pay off the full amount owed on the card by the due date on your statement. If the spend requirement goes over a few months, you'd need to make sure you do this each month.
- Check your rewards account. If you've met the bonus point spend requirement, it could take a few weeks before the points land in your frequent flyer or other reward account. As a point of reference, most bonus point offers say you should allow 6–10 weeks from when you meet the spend requirements. After that, you might want to call your provider to follow up, as it's important you get the points before cancelling your credit card.
- Cancel your credit card. When you see the bonus points have landed in your rewards or frequent flyer account, you can cancel the card. The main goal here is to avoid paying the second-year annual fee, which would be charged 12 months from when you opened the account.
- Apply for another bonus point offer. If you're churning cards, you would typically apply for another introductory credit card offer after you cancelled the previous card. Each time you apply, an inquiry is added to your credit file, so some people who churn cards recommend waiting a few months between applications to help space them out.
Bonus point offers and "new customer" eligibility
Some credit card providers in Australia limit bonus points to new customers or cardmembers, including American Express, ANZ, Westpac and St.George.
For example, most American Express bonus point offers are only available if you don't currently have an Amex card and haven't had one in the past 18 months. With ANZ, Westpac and St.George, you can't have held a related credit card in the past 12 months for most bonus point offers. So it's important to check the fine print before you apply.
What about credit card churning for balance transfers?
Sometimes the term "credit card churning" is used in reference to 0% interest balance transfer offers. In this case, you would get a balance transfer card and enjoy the 0% p.a. introductory period before transferring the debt to a new card that also offers 0% p.a. interest. The main difference between this and churning cards for points is that balance transfer offers last a lot longer than bonus point offers.
Potential risks of credit card churning
While the promise of thousands of bonus points can make it very tempting to churn credit cards, this strategy comes with some big risks and potential issues both in the short term and long term. Some of the pitfalls you may notice early on include:
- Increased spending. Credit card bonus point offers usually require you to spend thousands of dollars within a set amount of time. If this amount is higher than what you usually spend on a credit card, it could have an impact on your budget or lead to interest charges.
- Credit card fees. While some credit cards that offer bonus points may waive the annual fee for the first year, there is a good chance you'll have to pay account fees for some of the cards you get. This means you'll need to carefully calculate the value of the bonus points, compare it to the annual fee costs and decide if it's worth it to get the full value out of churning.
- Credit card debt. Increased spending and account fees also lead to a higher risk of credit card debt. While the goal with churning is to keep rates and fees to a minimum, it often requires careful account management to achieve that. The more cards you get, the more difficult that may become.
Credit card churning and your credit score
One of the biggest potential issues with credit card churning is the way it can affect your credit score. This is because each time you apply for a new card, meet the bonus point spend requirements, then cancel the account, you're adding details to your credit history that could hurt your credit score. This includes:
- Multiple inquiries from lenders. Whenever you apply for a new credit card (or other loan), an inquiry is listed on your credit file. A lot of inquiries in a short amount of time can have a negative impact on your credit score because it suggests you're shopping around for products. In the worst-case scenario for lenders, it could show someone is desperate for credit. What's more is that each inquiry can stay on your credit file for up to five years, so any potential lenders will be able to see how frequently you're applying for new credit cards or loan products.
- Decreasing the length of your average credit account history. When you open an account, your credit file will show it as active and record details of activity (such as repayments and defaults). It also shows when an account is closed. While accounts that have been open for a long time that have good repayment history are usually seen favourably, those that are closed soon after opening can have the opposite effect. This is because it can suggest instability and a lack of financial commitment.
- Eliminating cards with good repayment history. With comprehensive credit reporting (CCR), details of your repayments may be included on your credit file. If you regularly pay off your account on time – which is the goal with credit card churning – this is seen as positive information that could improve your credit score. But cancelling those cards once you have the bonus points means that this information is no longer relevant, so it could actually hurt your credit score in some cases.
- Changing credit limits. Every time you open a new credit card account, your credit limit is added to your credit file. Lenders may consider the total amount of credit you have access to when they are looking at new applications. If your access to credit has been going up and down while you open and close accounts, it suggests instability that could hurt your credit score and/or your chances of getting approved for new credit products in the future.
Can credit card churning lead to declined applications?
Credit card providers rarely give a definitive reason for declining a new application, but getting a lot of cards in a short amount of time is usually a red flag for them.
Even if you have a good credit score, be aware 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 or other offer.
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, it's better to wait at least a few months (or longer) before you apply for another card.
Is credit card churning worth it?
Credit card churning requires careful planning and management if you want to get the most value out of each bonus point offer. You'll also need to carefully monitor your credit file and credit score to avoid declined applications down the track.
For some people, collecting points that can be used for flights, upgrades and other rewards may be enough to justify the effort involved in churning cards. But if it sounds like a big ask, then it's probably better to compare frequent flyer credit cards and find one that offers a good mix of bonus points and ongoing features so you can stick with it beyond the honeymoon period.
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