Card Churning

Discussion in 'Other Credit Card Programs' started by Patricia GW, Mar 26, 2012.  |  Print Topic

  1. Patricia GW

    Patricia GW Member

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    Hello MilePoint fellows, I am a newbie travel hacker seeking advice on "card churning."

    I've followed blogs such as Frugal Travel Guy in the past, who mentioned earning several thousand miles through applying for promotional credit cards and then cancelling them. How does this affect your credit? What are the downsides or disadvantages to opening and closing several credit card accounts? Once you have the bonus miles, do you simply cancel the card immediately?

    If you could give me a general idea of how card churning works, I would appreciate it.
     
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  2. Jimgotkp
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    Jimgotkp Gold Member

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    Why close a card immediately if your AF isn't due yet? I highly recommend not closing any Chase cards immediately after you receive the bonus. There have been reports of Chase closing people's accounts and even blacklisting them. Considering that Chase has a good number of great cards/sign-up bonuses, the rewards are too high to risk.
     
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  3. Patricia GW

    Patricia GW Member

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    Hi Jimmy, what does "AF" refer to? I currently have a Chase Sapphire Preferred and I intend to keep it for years to come. So it wouldn't be wise to open a second Chase card and cancel it?
     
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  4. Jimgotkp
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    Jimgotkp Gold Member

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    AF = Annual Fee. I would just keep the second Chase card open until the AF is due and Chase won't get a statement credit or if you apply for another card and they/you offer to close the second account so it moves the credit to the new application/card.
     
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  5. Dangjr213

    Dangjr213 Gold Member

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    AF= annual fee

    Seeing as know most people believe the sapphire is the best overall card available, I wouldn't close it to open a new chase account. Depending on your credit history, credit limit, and relationship with chase, you can get multiple cards. I've got 4 chase cards at the moment. In order to approve you for a new card, they are even willing to decrease your credit on exisiting cards.

    As for the credit impact, I'll let others answer that question as there are so many different views on this matter. There are so many factors used to generate your score differnt things affect people differenty. The one thing I can say for certain is hard inquiries do in fact ding your score a few points. And opening new cards lowers your average age, but I think these two factors are only a small percentage of your score (10%)
     
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  6. Patricia GW

    Patricia GW Member

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    Okay, thanks for the advice. Do you know how having several open credit cards affect credit score/likelihood of applying for future credit cards?
     
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  7. Jimgotkp
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    Jimgotkp Gold Member

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    Well as Dangjr213 mentioned, every application/hard inquiry dings a few points on your score. Every bank will have a maximum credit limit for you and once you reach that limit they can reject you unless you move around the credit limit in other accounts.
     
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  8. Patricia GW

    Patricia GW Member

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    Dangjr213, That makes sense, I'll ask to decrease my credit on existing cards when I open a new one. I don't understand why opening/closing credit cards is treated as a negative activity, and lowers your credit score. But if it's only 10%, that does not seem so significant. I seem to have been under false impressions as to what a credit score is based on and what it allows you to do. Do you know why it is significant to have a top credit score?
     
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  9. LarryInNYC

    LarryInNYC Gold Member

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    These two questions (how does it affect your credit score and when, or if, to cancel cards) are extensively discussed at the sites that cover credit card bonuses, including Frugal Travel Guy. I suggest that you do a search on those sites to get a fully considered answer to your questions.

    However, in short:
    1. Every time you apply for credit (whether you're approved or not) an inquiry goes on your credit report. This affects your credit report negatively in two ways: your score will take a "hit" of 2 to 5 points and some companies will simply look at the number of inquiries in the last X months and deny you based on that number, even if your score remains good. The inquiries "fall off" your credit report over time — I believe they stop reducing your score after 12 months and disappear completely after 24 months.
    2. Offsetting the hit your credit score takes from inquiries is the fact that your score improves the larger your "available" credit, assuming you use only a very small percentage of it. For instance, if you have one card with a $5,000 limit and generally are using $1,000 you have a 20% "utilization ratio". If you keep using $1,000 but get more cards so your total available credit is, in theory, $50,000 your utilization ratio goes down to 2%.
    3. There is generally little reason to cancel a credit card if it doesn't cost you anything to own it. Most people wait until the annual fee is due and then consider whether it's "worth it" to pay the fee (some cards come with a benefit each time you pay the fee). Even then, when you call to cancel the company will sometimes waive the fee or offer you a benefit that makes it worthwhile to keep the card. Most people here probably have ten or fifteen cards active at one time..
    4. Sometimes you will be denied a card, or sent to a special "needs approval" group because you already have two many cards with a particular bank, or those cards in total have a credit limit that the bank does not want to exceed in your case. When that happens you can often (especially with Chase) call a special "reconsideration line" and negotiate with them to drop one or more old cards that you don't want, or even just move credit from one card to another to get the new card you want.
    Good luck!
     
  10. LarryInNYC

    LarryInNYC Gold Member

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    On a small scale, it doesn't. Banks are looking out for people frantically trying to get as much credit as they can, which is an indicator of financial distress (and therefore makes that person a credit risk).
     
  11. Patricia GW

    Patricia GW Member

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    Larry, thank you! You answered my questions thoroughly, and now I have a better understanding of credit scores/when one should apply for another credit card.
     
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  12. cotter77
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    cotter77 Silver Member

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    the few points Hit that your Credit score takes after applications for CCs is short lived in most cases.
    Goals should be to keep accounts open as long as possible and minimize annual fees. do this by calling the CC rep and tell them you have better options without annual fees and ask what else they can offer, can they waive the annual? and if they refuse to waive, hang up and call back a few times. try different attitudes. If they never want to waive the fee the consider cancelling but also consider asking if they can keep account open and then downgrade to a fee-free card. that way the account stays open (hopefully forever) and increasing you credit history and hence score.
    other benefit of maintaining that credit line is that in some cases or banks, e.g. chase, its easy to apply for another different Chase card and if you get declined, you call the RECONSIDERATION line and try to get the CSR rep to approve you and part of that could depend on already having excess unused credit line on your first chase card that they basically transfer to the new account and approve you for that second card...read millionmilesecrets for these tips.
    i learned this the hard way....but NEVER, EVER call and ask to reduce your credit limit, thinking that it will help you get approved for more future CC apps.
     
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  13. airshadow
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    airshadow Gold Member

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    Welcome to MP! I agree with the suggestions above, most importantly with what cotter77 and others have said - be sure to have a few "keeper" cards (no annual fee) while building credit history. However you get them - applying for them outright or downgrading existing cards when annual fees hit - they are important to your long term strategy. You don't want to find yourself 10 years from now wishing you could cancel your fee-card, but can't, because it's your oldest one.

    I'd suggest at some point getting the free Chase Freedom card. Those points can be combined with your Sapphire Preferred points and usually there's a decent sign up bonus floating around. Good luck!
     
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  14. cotter77
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    cotter77 Silver Member

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    or getting the chase sapphire preferred while you can for 50k and then downgrading it after one year to plain sapphire without annual fee and keep that sucker for life
    or get the citi AA visa and after a year or more milking the "please dont cancel the card" retention offers when you call, and want to be done, downgrade to the Citi AA world MC
    or jump on the AMEX no fee Hhonors card that has a decent bonus.
    and the AMEX SPG card which is highly claimed as the best travel points card which can be downgraded to a non-fee AMEX bluecash card ....send me a PM or "start a conversation" with me for an SPG referral Please!;)
     
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  15. miles and smiles
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    miles and smiles Gold Member

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    Here is one idea that I feel is worth considering when entering or pursuing the world of credit cards and their bonuses:

    Consider the fact that you are entering (or continuing/building) a relationship with these credit card companies. What do you want your relationship to be? Is it just a matter of getting bonus miles and points, or is there something more?
    In other words, consider how you will treat them as well as you want them to treat you.
    Consider if you want/intend to do business with them long-term.
    Are you just looking for the best deals or are you also looking for good relationships?
     
  16. airshadow
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    airshadow Gold Member

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    I want a long term relationship that really puts out :)
     
  17. knvinvest

    knvinvest Silver Member

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    I also read that if you intend to apply for a mortgage and/or car loan, it's not a good idea to apply for all these credit cards in the same year. Too many inquiries and dings on the FICO score will be challenging for the lender.
     
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  18. deant
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    deant Milepoint Guide

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    One of the first things to do is check your credit score and see how many "Pulls" you have from each bureau. Then watch which banks pull credit reports from which bureaus. This will, to a large extent, dictate how many cards you can apply for. In my case EVERYONE, except Barclay's, uses Experian. So I have to limit my card applications such that I don't have too many hard pulls on that bureau.

    I have to disagree about keeping "no fee" cards for many years. You need to remember that banks tend to forget about credit cards after they have been closed for 2 years. So if you cancel a "no fee" card, you will be able to reapply for it and get the sign up bonus after about 2 years. If you keep the card, you may, or may not, be able to reapply and get the bonus.

    In my case, I tend to cancel cards after about 7 months or so. That way I don't have too many open cards with one bank. For example, Chase tends to want to keep you to a maximum of about 3 personal cards. If you wait to cancel until a year is up, you may have given up the opportunity to get a card approved.

    Just my opinion.
     
  19. cotter77
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    cotter77 Silver Member

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    while its true for me as well that almost every card pulls from experian, and i strongly urge beginners, or young people or those trying to improve their score to downgrade cards to no fee versions and try to keep open for as long as possible. especially ones that you already had open. credit history length is more important that pulls in influencing you score, yet everyone around here and the blogs- all they ever talk about are pulls. there is so much more to it than that
     
  20. airshadow
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    airshadow Gold Member

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    My advice was geared toward those just starting out (like the OP). If their oldest cards are fee-based, and they can't downgrade them, they'll be stuck paying annual fees just to keep them open. Cancelling will affect their oldest accounts/AAofA.

    Established credit is a totally different story.
     
  21. airshadow
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    airshadow Gold Member

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    In fact, the only time I ever consider downgraded or keeping a free card is if I've recently taken advantage of a smoking good bal trans offer (they still come up every once in a while) that shoots my utilization way up and I need the extra credit to help my ratio. So, it's all about individual needs. For the seasoned player, deant's strategy is definitely more appropriate.
     
  22. TheTravelAbstract

    TheTravelAbstract Silver Member

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    LarryInNYC did a stellar job laying it all out there.

    The cancelling a card does nothing but the side effects it has in lowering your Average Age of Accounts, Credit Util % will impact your score.

    I think if you have your No Fee cards there I have no reason to get rid of it. This would have potentially large impact on your Credit Score by way of the above mentioned factors. I have my BoA WorldPoints card, my oldest card, that has no fee and I do not see a reason to close it because it may do more damage than it is worth.

    If the card issuer says I have too many cards I would rather move CL around or close a newer card with an annual fee to get the new cards bonus offer.
     
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  23. memlady

    memlady Active Member

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    I've been adding a card at a time every five or six months when the sign up bonus looks really good. I had just applied for a card (my third new one in a year or so) when my bank offered me a reduced rate on my mortgage. I had no trouble refinancing (well I had trouble refinancing but the bank kept losing the info I sent them). I did get a letter saying my credit score of 754 could have been higher but for the recent inquiries. I also had put a lot of travel expenses on my cards right before the refi, so my utilization was pretty high at that point. So, the small amount of credit card churning I do didn't impact my ability to refi my mortgage.
     
  24. LizzyDragon84
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    LizzyDragon84 Gold Member

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    The first question I ask anyone who is thinking of playing this game is whether they can pay off their cards in full every month without exception. If they can't, then the high APRs of most mileage cards make it not worth the rewards.

    My experience with credit card churning is that my score shot up 20-30 points due to the much higher credit limits I was getting. Before I started, I had just one card with a low limit from a local credit union.

    When I'm looking at getting a new card, I consider how and when I'll use the reward. If I don't think I can burn the points within 2-3 years, I pass since program rules tend to change over time and not in a favorable way. I also consider how many cards I have open with that bank and the last time I opened a card with them. Finally, I'm looking at how difficult it would be to meet the requirements to get the bonus.

    I haven't been looking at the number of pulls I have with the various bureaus. I've opened about 10 cards over the last 2-3 years without a rejection. That number of pulls doesn't appear to be high enough to raise any flags with the banks.

    The number of pulls matter more if you're try to open several cards every 90 days (which is what the Frugal Guy does). I don't do that because meeting multiple spending requirements at the same time would be difficult for me.
     
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  25. zhaoqian

    zhaoqian New Member

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    You don't want to find yourself 10 years from now wishing you could cancel your fee-card, but can't, because it's your oldest one.
     

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