The basics of credit card churning

---

For the last 6 months, I've been credit card churning; i.e. signing up for credit cards, spending enough with them to qualify for the signup bonus, and then moving on to the next. I was always aware that this was doable, but had assumed that it was kind of like coupon clipping, and not really worth the time. I had also assumed that it was bad for your credit rating. Upon closer investigation, it turned out that it was certainly worth my time, and that any damage to one's credit is likely only temporary. It's more likely that in the long term this will improve your credit score, for reasons I'll explain below. Of course it does take some time, and the worth of spending your time doing this will depend on your current income and free time.

The first thing to note is that there aren't many good credit card signup bonuses in Europe, and the best deals seem to be in the US. Hence, this post will be entirely US-centric. It would be interesting to better understand why this discrepancy is so large. One reason may be that culturally, Europeans seem to prefer debit to credit spending. It's also legal for certain merchants to pass on their costs of accepting credit card payment to the customer. Anyway, this is largely tangential, and I don't really understand the details, but if you do, please post in the comments.

One of the most useful things that you can get from credit card bonuses is frequent flyer miles, and hence free flights from those. My original motive for getting into this was to have free flights for my imminent trip to Asia. With the amount of points I've now accumulated, I'll expect I would be able to fly around the region at will, for free, for a year.

Cards with the highest bonus/spend ratios

A terrific list to start with is here. Notice that the list is sorted by the spend requirement needed to get the bonus, and at the top, there are a few cards where you merely need to make a single purchase to get the bonus. These are no-brainers, iff they have their annual fee waived in the first year. There are so many cards that waive their first year fee, that IMO, at least at first, it's only worth considering such cards. Once you get a few credit cards, the number of mail offers you receive will increase. Take a look at these, as some, particularly from AMEX, can be very good and aren't available online.

Staying organized

It's generally considered best practice to apply for a bunch of cards all on the same day, rather than spreading them out more uniformly over time. This is because your credit score takes a small hit (less than 5 points) with each inquiry into your credit that's performed for a new card. However, this hit is temporary, lasting not more than 1 year, and possibly much less. It seems that your score doesn't update intradaily, so you are less likely to get declined doing it this way. It's also easier to stay organized this way, and batching is more efficient. After successfully applying for a new card, I do the following organizational bookkeeping:


• Add the credit card's name, bonus req, date I applied, annual fee, and due date for meeting the bonus req to my spreadsheet. Some good templates can be found here.
• Add a date about 11 months from that time into my calendar, reminding me to cancel that card (iff it has an annual fee). It's best not to cancel the card right after receiving the bonus, as this can contribute to getting you flagged as a bonus exploiter, whence the prolific card issuers like Chase might stop giving you new cards.
• Update my approximated projected spending plan with my different cards, so that I have a handle on whether I should apply for more now, or need to wait.


When a new card arrives in the mail, I go through this procedure:


• Activate the card online if possible, or by calling if necessary.
• Create my online account with the issuer, if I don't have one already.
• Setup autopay within the account so that I don't have to keep track of payment deadlines.
• Setup paperless statements/communications.
• Add the credit card info to a credit card profile in LastPass. This helps with organization, security, and convenience. If you don't use LastPass, or a similar secure password/data manager, you should welcome your self to the 2010's and start doing so. Having your online identity compromised sucks. A password manager is one of the rare instances where you can increase both your security and convenience simultaneously. Make sure to enable a form of 2-factor authentication as well, and require it for nontrusted computers. I recommend using the smartphone app Authy as a substitute for Google Authenticator (it generates the exact same codes), because of superior recovery options if/when your phone is lost/stolen/broken. Since keeping around a lot of physical credit cards is annoying and insecure, I typically chop some up immediately, and used their stored information in LastPass (there's a special credit card form fill profile) to complete my purchase requirements online with them.

Amazon Payments can help you churn $1k / month

Amazon payments can help you accumulate an extra $1k/month of churn, without actually spending any money on net. I'll just say that this is very valuable, still works, and all the details can be found here.

But what about my credit score?!?

A caveat to this section: The details of FICO's formula are not public knowledge, so what's said here may not be 100%!a(MISSING)ccurate under every cicrumstance. If you are not able to always make payments on time or not able to stay organized, then you are playing with fire if you try churning.

As I mentioned above, each new credit card application can cause a short-term reduction of a few points your credit score, which should atrophy completely within a year. The new credit account itself can also have a small detrimental impact. So, if you might apply for a big loan in the next few months, you might want to avoid getting a new credit card. Note that these considerations fall under the category of "new credit," which is only 10%!o(MISSING)f your FICO score.

On the flip side, having more credit cards means you will have more total maximal credit per month to your name. This ends up making a positive contribution to your credit score over time, because 30%!o(MISSING)f a FICO score is your utilization ratio, i.e. the %!o(MISSING)f your available credit that you draw on per month. Another component (15%!)(MISSING) is your credit history length. Some claim (somewhat supported here) that it's wise to keep your first credit card forever, as this guarantees that the credit history associated with that card will be on your credit report forever. Quotes from a FICO spokesperson suggest that the only potential negative impact of closing credit cards occurs via reduction of your max credit increasing your utilization ratio, and perhaps eventual reduction of your credit history, iff that was your oldest card. So churning wouldn't hurt your credit score via eventually closing the churn cards (that you otherwise never would have had in the first place).

Further Resources

I would advise against going too far down this rabbit hole, as there are certainly diminishing returns beyond just following the basic template that I laid out above. When it's time for another batch of cards, just try to find a recent list of the best reward/spend ratios. However, sometimes more specialized info is desirable. A few good sources are:


• The Points Guy (http://thepointsguy.com) This guy gives very comprehensive and up-to-date coverage of current credit card offerings and travel hacking.
• Flyertalk (www.flyertalk.com) A forum frequented by a lot of travel industry insiders. They guys are pros and know how everything works.

Happy Churning!

---