The Ultimate Guide to Credit Cards
Wednesday, June 19, 2024

What is Credit Card Churning & Does it Affect My Credit?

What Is Credit Card Churning
John Ulzheimer

Written by: John Ulzheimer

John Ulzheimer
John Ulzheimer

John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. The author of four books on the subject, Ulzheimer has been featured thousands of times in media outlets including the Wall Street Journal, NBC Nightly News, New York Times, CNBC, and countless others. With over 30 years of credit-related professional experience, including with both Equifax and FICO, Ulzheimer is the only recognized credit expert who actually comes from the credit industry. He has been an expert witness in over 600 credit-related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit. In his hometown of Atlanta, Ulzheimer is a frequent guest lecturer at the University of Georgia and Emory University's School of Law.

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Edited by: Lillian Guevara-Castro

Lillian Guevara-Castro
Lillian Guevara-Castro

Lillian Guevara-Castro brings more than 30 years of editing and journalism experience to the CardRates team. She has written and edited for major news organizations, including The Atlanta Journal-Constitution and the New York Times, and she previously served as an adjunct journalism instructor at the University of Florida. Today, Lillian edits all CardRates content for clarity, accuracy, and reader engagement.

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Reviewed by: Ashley Fricker

Ashley Fricker
Ashley Fricker

Ashley Fricker has more than a decade of experience as a finance contributor and editor, and has specialized in the credit card industry since 2015. Her credit card commentary is featured on national media outlets that include CNBC, MarketWatch, Investopedia, and Reader's Digest, among many others. She has worked closely with the world’s largest banks and financial institutions, up-and-coming fintech companies, and press and news outlets to curate comprehensive content and media. Ashley holds a bachelor's degree in multimedia journalism from Florida Atlantic University.

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Opinions expressed here are ours alone, and are not provided, endorsed, or approved by any issuer. Our articles follow strict editorial guidelines and are updated regularly.

There is no shortage of strategies to maximize the financial benefit of credit card accounts. Most of them are generally positive in nature, with little to no downside. But one strategy that threatens to damage your credit reports and credit scores, both short and long term, is the so-called credit card churning — and it should be approached with caution.

Credit Card Churning is the Pursuit of Signup Bonuses

Credit card churning is the process whereby a consumer applies for and opens new credit card accounts in a short period of time and scoops up the various introductory bonuses and rewards offered by credit card issuers, with no real intent on using the card long term.

Once a churner’s credit card application has been approved and they’ve met the minimum spending requirements to receive the signup bonuses, they eventually close the credit card account or otherwise never use it again. It is a bit of a game of credit Russian Roulette, but it can be effective.

The Downsides of Churning

Applying for a bunch of credit card accounts at the same time to earn signup bonuses can lead to considerable problems downstream. And these problems can cost a whole lot more than the upside value of your rewards. These potential problems are, in no particular order: 

Negative Impact of Hard Inquiries

When you apply for a bunch of credit cards, your actions are going to leave behind a considerable amount of evidence. Each time you apply, the card issuer is eventually going to pull at least one of your credit reports and credit scores. This is going to leave behind a hard credit inquiry on at least one of your credit reports.  

New Credit FICO Score Points

Hard credit inquiries will remain on your credit report/s for up to 24 months. In fact, it is a statutory duty placed upon the credit bureaus that they maintain a list of companies that have accessed your credit reports. The point being, there will be evidence of your churning activities for two years after the fact, and anyone or any company that pulls your credit reports during that time will be able to see it.

Credit scoring models will see the hard inquiries and they may cause you to have a lower credit score. While the impact of hard inquiries ranges from nothing to de minimis, it is better to have higher than lower credit scores. And credit scoring models consider hard credit card inquiries for their first 12 months on your credit report so any impact to your scores, albeit minor, will last up to one year.

Also, just because a credit scoring model no longer considers hard inquiries after 12 months does not mean they cannot still be problematic. Lenders can still see hard inquiries that are 13-24 months old and may hold them against a consumer as part of their underwriting processes.

Being denied credit just because of a few credit inquiries is almost unheard of, but credit inquiries can be considered along with other aspects of a consumer’s application and can play some role in a lender’s decision.    

Negative Impact of Newly Opened Accounts on Your Average Account Age

When you apply for and open new credit card accounts, those accounts are eventually going to be reported to the credit bureaus. Unlike credit card inquiries, which only show up on the credit report that was pulled by the card issuer, newly opened accounts are almost guaranteed to end up on all three of your credit reports. This is likely to happen almost immediately and certainly within 30 days of your account being opened.

When a new account is added to your credit reports, it immediately becomes fair game to credit scoring systems. This means the next time your scores are calculated, those new accounts are going to be part of the scoring process.

There is one particular metric in credit scoring systems that will be severely penalized by churning activities. That metric is the “average age of trade” metric. 

Average Age of Credit FICO Score Points

The average age of trade is the average age of all of the credit accounts (not collection accounts or public records) on your credit report, whether they are open, closed, in good standing, in default, whatever. If it is on your credit report, it is considered in this metric.

The calculation is simple math. You take the sum of the age of all of your accounts and divide that value by the number of accounts. For example, if you have two accounts on your credit report, one 12 months old and the other 48 months old, your average age of trade is 30 months, or 2.5 years. The younger your average age of trade, the lower your scores.

When you constantly add new accounts to your credit reports, you are going to make them look younger. And, the more new accounts you add, the more you are going to magnify the problem. You need an average age of trade closer to 15-20 years to max out your credit scores. You will simply never get there if you churn. 

While this may seem like a benign issue, the age of credit group of metrics is actually worth 1.5 times the value of the inquiry-related metrics. So if you are concerned about the impact of credit inquiries, you should be more concerned about the impact of a bunch of newly opened accounts. Their impact is greater and lasts longer than the impact of inquiries.

Should I Churn or Not?

While there is certainly nothing illegal about applying for credit as often as you like, it can lead to lower credit scores for a really long time. If you value credit card rewards more than you value your credit scores, then churn away. But if you are going to be in the market for a home loan or an automobile loan in the near future, you may want to skip the churning. 

I generally do not give my opinion on these types of things and let adults make adult decisions. But from a financial perspective, a lower-priced mortgage or auto loan is clearly more financially valuable than a few free airplane tickets.