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There are an overwhelming amount of credit cards on the market. Companies compete to attract consumer attention by touting compelling reward programs and sign-up bonuses.

Credit card churn is a strategy consumers use to gain the maximum rewards and other benefits from these companies. The most common methods are signing up for the cards with the best rewards, receiving sign-up bonuses, and canceling the card before any annual fees are due.

Racking up points or cash-back with this strategy may seem tempting, but it’s essential to understand the risks. The churn strategy is potentially damaging to your financial well-being. Plus, most companies have become aware of churn strategies and have implemented policies to limit this activity.

What Are the Benefits of Churn Strategies?

Are you looking to fund your next vacation with points? Have a large purchase on your wish list, such as a bike or computer? Or would some extra cash come in handy? A credit card churn strategy may help you reach one of these goals.

Consumers using credit card churn strategies aim to score a high quantity and quality of sign-up incentives. These incentives include bonus points to use towards various rewards, cash bonuses or cash back, and mileage. It’s a strategy that can be highly useful if done carefully.

What Are the Risks of Churn Strategies? 

The most probable risk of credit card churn strategies is racking up balances you can’t pay off each month. The cards with the highest rewards also have the highest interest rates, so consumers who aren’t careful will spend more than they earn on fees and potentially amassing debt. The churn strategy is best if you are free of credit card debt and confident you can zero monthly balances. 

Sign-up incentives generally come with a minimum spend requirement in an initial period, such as three months. Another risk is not spending the required amount and losing out on bonuses, negating the point of signing up in the first place. Ask yourself if you can meet the minimum with your typical monthly spending. If not, plan around a sizeable upcoming payment, such as a home insurance bill or increased spending for a vacation or home renovation. One spending strategy is to purchase gift cards for grocery stores or other frequented companies to use in the future. 

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Annual fees limit how much you earn. The reward may not be worth the other risks if you receive a $200 cash back reward only to pay a $90 annual fee. It’s wise to look for cards without annual fees or to cancel before the fee’s charge date. As we discuss below, canceling too many cards may impact your credit card score. 

You also want to make sure you use your rewards before they expire. Cash-out any rewards before canceling cards. Better yet, look for cards with no expiration date for rewards or the ability to transfer them to another card. 

The same activities you do to gain rewards through churn strategies are the ones that can negatively impact your credit score, Nerd Wallet explains. Scores may go down if you apply for too many cards in a short time, rack up debt, or quickly close out cards. Instead, only apply for a new card every six months, keep cards with no annual fee, or look into downgrading to cards without fees. And as mentioned above, pay your balances fully and on time, as missed and late payments will also ding your score. 

What Measures Are Companies Taking to Prevent Churning?

Credit card companies make money from annual fees and interest payments, not from shelling out rewards for cards consumers turn around and close. Read the fine print to understand what preventative rules banks have that may result in declined applications and revoking your rewards. Overall, keep in mind that banks own the rewards and can void them as they see fit. 

Reward Expert details rules, exceptions, and restrictions for the major companies. Capital One, for example, limits individuals to two of their cards at a time and only approves a new card every six months. American Express has implemented a once-in-a-lifetime welcome bonus meaning you can only redeem it once. Citibank does not allow bonuses within the same family of cards for two years. 

Forbes explains that banks have also limited how many cards they will approve. For example, Chase’s 5/24 rule means they will decline approval of a new account if you have opened five or more cards from any bank in the past 24 months. 

To be successful with a churn strategy requires careful tracking and monitoring. Limit how many cards you sign up for yearly, pay balances in full, look for cards with high rewards and zero or low annual fees, read all the rules, and keep an eye on your credit rating.