We’re not talking about the “Shopaholic” kind of person, where they are basically addicted to spending money they don’t have. We’re talking about people who repeatedly apply and cancel credit cards to earn rewards, bonus points, cashback, and free gifts. This practice is also known as credit card churning.
There are ways of maximizing credit card benefits.Use them wisely, and you can reap real benefits of having credit cards. Many banks and credit card issuers offer great sign-up gifts and bonuses. New cardholders receive valuable complimentary gifts when they first use their new card and can earn a big cashback for spending a minimum amount within a certain timeframe of activating the credit card.
What is credit card churning?
Credit card churning refers to the practice of regularly opening and closing a credit card to earn its sign-up rewards and perks. Doing this with multiple credit cards allows the cardholder to accumulate far more rewards than just one or two credit cards. Some even use strategies like combining rewards from loyalty programs to maximize the amount of rewards they earn.
Credit card offers change fairly often. Don’t assume the promotion you see on a bank’s website or an ad is the best deal you can get. Real credit card junkies frequently check different banks and credit card offers.
However, a good credit card junkie is extremely careful and very disciplined.One must be responsible with credit and have solid financial basics in place. If not, one could end up deep in debt and a poor credit score. If you decide to practice this concept, there are a few guidelines you’ll want to follow:
1. Pay Balances in Full Each Month and On Time
Never spend more than you can afford to pay back even if you’re aiming for a bonus. If you can’t afford to pay off the full balance at the end of billing cycle, you should NOT churn credit cards. You definitely shouldn’t try to earn bonuses on more than one credit card at a time if you’re struggling to spend and pay off just one. Racking up huge credit card balances can get you into the kind of debt that can bankrupt you.
Another reason to pay off your balances each month is to avoid paying interest on your balance. Remember, the point is to get a benefit from credit card issuers and any interest you pay lowers the nett benefit you get from the credit card.
Missing or making late payments can add penalties, additional interests or fees. Your inability to make prompt payments will affect your credit score. If your credit score is damaged because of a late payment, you will find it hard to get approved forcredit cards or any financial product in the future.
2. Read the Fine Print
Reading through the credit card terms and conditions is a must! Some credit card campaigns only allow you to earn a bonus under certain circumstances, especially for minimum spend campaigns. Credit card terms are subject to change, so always read the terms and conditions before applying for a credit card or taking up a spend campaign.
3. Keep Annual Fees in Mind
Many credit cards waive the annual fee in the first year. Some may offer annual fee waivers if you spend a certain amount annually or use a minimum number of times. You’ll need to keep using your credit card to remain active and balance that credit card spending with the spending you’re doing on other credit cards if you’re actively trying to earn a bonus. And if you’re not keeping the card, you should close the account before the annual fee gets charged.
4. Increase Efforts inKeeping Track of Your Credit Card Progress
It’s a serious business of organizing and keeping track of your credit card churning efforts. You’ll need to keep up with the following details of each credit card you have:
- Credit card activation date.
- Annual fee, date that it is charged and whether it’s waived or requirements to get it waived.
- Sign-up rewards and bonus, its requirements, and dates of the timeframes or deadlines.
- Balances across all credit cards, billing cycle, and interest rates.
- Applied bonuses, when you must use them by, and other terms and conditions that may apply.
- Timing for any promotional deals or rates and important conditions for each promotional deal.
5. Never Make Balance Transfers or Take Cash Advances
These transactions don’t count as purchases and therefore won’t help you reach spending minimums. They just use up your credit limit and leave you with less room for spending. Both transactions typically incur additional fees or start accruing interest right away.
6. Don’t Apply for Too Many Credit Cards in a Short Period of Time
Banks may reject your credit card application if you’ve applied for or activated too many credit cards in the past 12 months. They want loyal customers who’ll use their credit cards for more than a few months. So, in an effort to crack down on credit card junkies, many banks limit the number of credit cards you can have.
Opening and closing credit cards can affect your credit score, but it won’t necessarily ruin it. Always remember that payment history and level of debt are the two biggest factors affecting your credit score. If you make prompt monthly payments and keep your credit card balance low, you’ll keep your credit score from deteriorating. Do keep an eye on your credit score regularly. Subscribe to a notification service so that you’ll know when your credit score changes.
As you can see, this practice is not for the inexperienced. You must have solid knowledge using a credit card, you’re a good paymaster, and have good credit report before getting into credit card churning. It’s too easy to get into debt trouble, and once your credit score is damaged, it’s difficult and long process to repair it.
This article is contributed by CompareHero.my, your go-to personal finance website for finding, comparingand applying for credit cards and personal loans products in Malaysia. Their service is free, easy, and completely unbiased.You may also findmoney saving tips on the CompareHero blog.