Dear Sherpa: What's the deal with credit card churning?

A great question came in via TheTripSherpa's facbook page, which you should both "like" (as in hit the button and let's be friends) and "like" (as in enjoy and find a way to directly connect with the Sherpa at all times if you wish).

Cue Casey Kasem voice:

JQ writes -

Dear Sherpa:

What's the deal with churning credit cards?  I'm new in collecting miles and whatnot but was thinking about doing a couple of more cards (if there are good sign-up bonuses) to help with future travels.  Curious on what TheTripSherpa would do in a situation like this.

-JQ

Great question JQ.  For the readers who may be unfamiliar, credit card churning is the act of signing up for airline/hotel/point credit cards with large bonuses, using them enough to qualify for the full payout of the large upfront bonus, and then discontinuing use in favor of another card with an additional bonus.

Most casual consumers will sign up for one airline, or hotel program, and one credit card and use it for years and years, for those customers this one time payout and choosing the program is very important.  Your relationship could last longer than some marriages (not mine thank you very much) so you want to make sue you will be happy with the partner you select.  If you have aspirations of seeing Tokyo at night, or Bali for Christmas, Southwest is not a good program for you so choose carefully.

For those that want to parlay their success here are some keys to remember:

  • Each card will have a bonus and a requirement, in order to get the bonus you must meet the requirement (ex. to earn 40,000 bonus miles you must spend $6,000 on the card in the first 3 months, if you fall short, no bonus - waste of a credit application).
  • There may be different card offers for each airline, if you prefer American Airlines, you have your choice of AMEX, Mastercard, or Visa and Chase, Citi, etc.  You may hold multiple cards but you should select these according to what you know you can use and get the full bonus.
  • It all comes down to timing.

If you apply for a credit card today, one of two things will happen once the reporting agencies get word of your application.  If you are approved your open revolving credit (the amount you could charge at any moment if you wanted to) will increase, making you more of a risk to other creditors, your credit score will also dip between 5-25 points depending on a gagillion factors.  If you are denied, this will reduce your likelihood of another approval.  There may be some things you can clean up in your credit history and score, and should try again in three to six months.

If this is your first time churning, I suggest a few things.

  1. Research the cards that will help you accomplish the goals you want to achieve (if you have a large mileage account,  pursue a hotel chain).
  2. Select 2-3 cards each from different banks (Citi, Chase, Capital One, etc.) and fill out the information in separate windows at the same time.
  3. Hit the "Apply" button in each window as close to the same time as possible, if it is more than 60 seconds between each apply button it could have a negative effect on your credit.
  4. Make a spreadsheet noting the date you applied, approval or denial, the card type (Visa), issuing bank (Citi), account type (airline), bonus amount quoted (40,000 points) and the date those points posted to your account.
  5. Set a reminder in your calendar for three months from now to review your success or failure to that point and re-evaluate your credit situation.
  6. Keep close track of any purchases that should count towards your bonus and the total amount of miles you receive using the card (for example, for the $6,000 spend to hit bonus points you will still earn a regular amount of 6,000 miles as well).
  7. Sign-up for creditkarma.com.  It's free and easy and they make their money off advertising, not selling your info. You get to track your report and score in real time without it adversely affecting your credit.  It will definitely help you to time your next application.
  8. When your credit score has come back to what it was prior to your last successful application and exceeded where it was before, consider closing your second oldest credit account (not your oldest) and possibly one that you recently opened and have concluded the bonus run.
  9. Wait another couple of weeks to see if you score is still around the same number, if it is, you are ready for your next cycle.

I am definitely not a financial adviser, I am simply telling you how a motivated individual could safely churn. In a practical world, as a first time churner you would apply for two cards in the same 60 seconds (which doesn't give the approval system enough time to see the other application) and would likely wait for 6 months until your credit recovers.  Once you get into a rhythm, you should be able to do 2-3 applications every three months.

If you want to support UPGRD.com (where the Sherpa will soon be joining), you can check these links for some bonuses.  Here are some I would suggest:

  • Chase Sapphire Preferred - Why? 40,000 points that transfer into loads of programs and great multipliers (5x points/$1 for certain shopping like office supplies, and gas, etc.).  Best if you don't have firm current travel plans and want the flexibility to transfer into many - some even offer transfer bonuses throughout the year.
  • Delta AMEX - Why? Decent bonus, but most importantly, it gives you some basic elite benefits like free a checked bag, which may save you more money in the future.
  • Citi AAdvantage - Why? 30k miles on American goes a lot further than Delta, and you get some of those benefits like the Delta AMEX, but you also get 10% of redeemed miles back per year up to 10k miles!
  • Starwood Preferred - Why? Because SPG hotels are awesome, especially outside the US, plus 25,000 miles could be as much as 8 nights - well worth the churn!
  • Hyatt Chase - Why? Fairly run of the mill, but no blackout dates, and easy point build-up makes it easy to attain a really nice property for redemption.

One more final word on this, if you have recently applied for a card be cautious with your credit  The more negatives on your report the longer between churns.  I would not suggest running two cards within the same alliance, for example, British Airways and American Airlines because you can redeem those miles on either airline so it is redundant.  It would be better to have hotel points to go with your redemption or another airline like Delta or United for some additional coverage for regions in which your alliance is not as strong.

I hope that long winded answer helps.  Good luck JQ, and happy travels.

-Sherpa

Posted on July 31, 2012 and filed under Uncategorized.