Can Credit Card Churning Hurt Your Credit?

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creditcardchurningIn my mind, there are exactly three good things about credit cards — they help you build credit, they essentially give you an interest free loan for one month, and they provide useful rewards for travel, cash back, and products. Savvy credit card users are starting to use the latter to their advantage by churning credit cards.

Credit card churning is the act of signing up for credit cards for the sign on bonus, spending the minimum to get the bonus, and then cancelling the cards when the rewards have been redeemed.

But don’t think the credit card companies are losing money on all of this. They know how the average consumer operates, and unfortunately, it’s not responsibly.

For those people who can exercise self-control to rack up rewards and then cancel the cards, credit card churning may be a great option! Here are a few of the rules for churning the right way:

1) ALWAYS pay off your balance in full. Credit card rewards are great, but don’t neglect to pay off your balance. Interest adds up fast and credit cards tend to have high interest rates.

If you have been known to rack up more credit card debt than you can pay for, churning is NOT for you. Maybe in the future, but don’t expect habits to change overnight.

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2) Keep track of it. If you want to be a credit card churner, you need to be hyper organized. Know how much you need to spend to get the rewards, when you are going to redeem the rewards and what you are going to redeem them for, and when you need to cancel to avoid the annual fee (which is almost a certainty for the credit cards with the best rewards).

3) Understand your credit score can be negatively affected. Opening and closing multiple accounts can hurt your credit score a little, so it’s best to avoid churning if you have a large purchase in your near future that will require a loan — such as a home, business, or vehicle.

4) Churning is for people with great credit scores. In order to get approved for the credit cards with the best rewards, you should have a good or excellent credit score. If you don’t have a great credit score, you may not be as in control of your finances as you previously thought.

Credit card churning is a great way to rack up free rewards for spending money you already planned to spend. Just make sure you are disciplined enough to keep track of your credit cards, pay them in full every month, and don’t churn before financing a large purchase.

Do you ever churn credit cards?

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Erin is the founder of Red Debted Stepchild, a blog about her journey to getting out of debt while still enjoying life in Portland, OR with her husband. She enjoys reading, eating, traveling, and crunching numbers on her numerous spreadsheets. Sometimes she remembers to tweet at @reddebted.