Credit Card Rewards - Card Churning

[JSH]

I thought I'd open a topic on credit cards - credit card rewards - and churning cards for the sign up bonus.

Most people know that reward credit cards are out there and give users points or dollars for every dollar spent. What many people don't know is that those rewards are tiny compared to what is offered for sign-up bonuses. There are a whole bunch of credit cards out there that will give you $500 or more just to sign up and spend a certain amount in a trial period. Signing up for a card, collecting the bonus and then cancelling the card is known as card churning and I'm a big fan. My wife and I churn 4 cards a year - one every 3 months.

The latest was the Chase Ink Business card. (You don't need to have an EIN number to get a business card) That offer is $900 for spending $6,000 in 3 months. Add in the rewards from that $6,000 of spending and we are at $1,000 reward for getting the card. That is the best sign up reward that I'm aware of at the moment.

Churn a few cards and it is easy to add a few thousand dollars to your income per year.

In addition to the $1000 above from chase, we recently did a United card for 100,000 miles. That just paid for 2 round trip tickets to London in May. We are flying to Alaska in July on points from an Alaska card. My parents just flew to see their grandson on miles from a Delta card signup. A Hilton card can get you 3 - 4 nights of hotels or a $200 spending on Amazon (A VERY poor use of points)


Anyone else out there churn cards? Any tips?

[aerohead]

A friend did an S-corporation, with a 'division' to handle each facet of real estate development.
He used these card incentives for every business-related purchase, and typically ended up with a free vacation and travel,somewhere in the world at no cost each year.
He was going to make all the purchases anyway, and took advantage of the incentives and tax code.
It's a real deal.

[redpoint5]

If I get my act together, I'll do this a bit more. There used to be some tricks to cash out the credit (probably want to stay under 50% utilization), then pay off the bill monthly.

Is it best to close the accounts that have no annual fee, or leave them open?

[JSH]

Originally Posted by redpoint5

If I get my act together, I'll do this a bit more. There used to be some tricks to cash out the credit (probably want to stay under 50% utilization), then pay off the bill monthly.

Is it best to close the accounts that have no annual fee, or leave them open?

You want to stay under 30% credit utilization. Both total and per card. You absolutely want to pay off the bill monthly – there is no point of churning cards if you are paying credit card interst at 20 – 30%.

If you are going to churn cards you need to close the accounts or you will quickly max out your credit limit.

Generally I sign up for the card, spend what I need to get the sign up bonus, and then close the account 6 months after I opened it. That gives a bit of a buffer between claiming the bonus and cancelling the card. (Most cards have some vague fine print about “abuse”.) So for this INK card I’ll spend another $1000 on the card, use the bonus to pay that off, then cancel the card in a few months.

Churning cards does have a slight hit to your credit.

A. Each card you open will be a hard pull on your credit and credit rating bureaus don’t like to see more than 6 hard pulls in 24 months. (Pulls drop off after 24 months). So you don’t want to be churning a lots cards if you are doing other things like taking out car loans or a mortgage.)
B. Churning cards will shorten the average age of your credit –which drops your credit score. However, from what I can tell that age of credit is only calculated based on open accounts so once your cancel a card it drops out of the calculation. To help my age of credit I have an old Chase card that I’ve had for more than a decade. That is basically a forever card that I’ll keep regardless of the rewards.
C. Cancelling a card reduces your credit utilization score buy reducing your total credit limit. This is only an issue if you are carrying a balance or have very low credit limits.

If someone tried to churn 4, 5, 6 cards a year I could see it hurting a credit score. For 2 a year it hits my credit a bit but it still stays about 800.

Companies also have some written and unwritten rules to try to cut down on card churning but they. Almost all card only allow you to get the signing bonus on the same card once every 2 years. You can’t churn the same card. There are also rules on total number of cards per bank:

• Chase: Though it’s officially unpublished, Chase has a rule called 5/24. If you’ve opened more than five personal cards in the past 24 months — from any issuer — you won't be able to open a new Chase credit card account.
• American Express: AmEx offers a welcome offer on most of its credit cards only once per person, once per lifetime. That means if you had a specific card previously, closed it and then applied for it again later, you would not be eligible for a welcome offer.
• Bank of America: This bank operates under what’s called the 2/3/4 rule, which is also unpublished. You’ll only be approved for a maximum of two credit cards per rolling two months, three cards per rolling 12 months, and four cards per rolling 24 months. Many Bank of America® credit cards also prohibit you from acquiring a card and getting a bonus if you’ve received it in the past 24 months.
• Citibank: Most Citi cards fall under a 48-month rule. That means if you apply for a card now and then cancel later, you won’t be eligible to reapply and get the bonus again until 48 months after your first application. Some cards fall under a 24-month waiting period, and some cards aren’t affected at all.

[freebeard]

I haven't used a card since my wife left many decades ago.

Most people know that reward credit cards are out there and give users points or dollars for every dollar spent. What many people don't know is that those rewards are tiny compared to what is offered for sign-up bonuses.

What I fail to understand is where the points and bonuses come from. Is it some variation on a Ponzi scheme, sustained by penalizing people who don't know how to play the game.

[redpoint5]

Originally Posted by freebeard

What I fail to understand is where the points and bonuses come from. Is it some variation on a Ponzi scheme, sustained by penalizing people who don't know how to play the game.

Average credit card balance is $5,500. Those who carry a balance pay for the rewards of others.

Then there's the transaction fee each card company collects on purchases (at seller's expense).

Card churn is not without risks, as there's often fine print about high interest rates that are immediately effective if you make any mistake in payment, even with another bank. Maybe a check doesn't go through and you get a late payment, and the other cards might start charging interest immediately.

It requires perfect attention to the details, to making payments in full every month, cancelling the card at the appropriate time, etc.

[freebeard]

So you can appreciate the peace of mind I've enjoyed all these years?

[JSH]

Originally Posted by freebeard

What I fail to understand is where the points and bonuses come from. Is it some variation on a Ponzi scheme, sustained by penalizing people who don't know how to play the game.

Rewards come from swipe fees. Every time a credit card is used the merchant pays the credit card company. Visa, Mastercard and Discover tend to charge 1.5 to 2.5% depending on the card. AMEX charges 2.5 - 3.5% which is why many merchants (especially small ones) don't accept AMEX

Banks buy airline miles or hotel points in bulk at a discount and then hand them out as rewards.

In general if you pay cash for something you are paying 1 to 2% more than someone that paid with a card and got the reward.

Originally Posted by freebeard

So you can appreciate the peace of mind I've enjoyed all these years?

Not really. I set all my cards to autopay so I know I will never miss a payment. Zero stress. Traveling for free also is quite the stress reliever.

[redpoint5]

Originally Posted by freebeard

So you can appreciate the peace of mind I've enjoyed all these years?

I appreciate that you find peace of mind sticking with cash.

I pay for things on the CC and never think about it again, because the bill gets paid automatically each month. Never have to make a trip anywhere to get cash, never find myself without enough cash, don't have to deal with change, etc.

If the government finds it interesting how much TP our household uses, they are welcome to data mine those records.

... my wife's PA program cost $10k every 3 months, and I paid that on a 2% CC because there was no discount offered for paying cash. While everyone else was paying interest on their student loans, I was receiving an $800 discount every year.

[freebeard]

So what you're saying is....

In general if you pay cash for something you are paying 1 to 2% more than someone that paid with a card and got the reward.

If the merchant doesn't offer a discount for cash, then I am subsidizing their valiant struggle against
Amazon?

If the reward is exposure to deep-vein thrombosis, and hotels? I'm good, thnaks.

I appreciate your peace of mind even though you [JSH] don't reciprocate.