I don't remember exactly when it started happening-- but sometime in my early twenties, I started getting inundated by those lovely (sarcasm) mailers from credit card companies.
(I'm not normally this excited when I get credit card offers, I promise. This was the first day I got my P.O. box! So legit. Only pic I could find that kinda goes with this post, haha)
You know the ones: they offer you a FREE FLIGHT ANYWHERE (if you just spend $450 in the next 2 months) or $150 FOR FREE (if you set your paycheck up to be direct deposited AND keep the account open for at least 6 months)
I will admit, the offers can really be tempting! A FREE flight? $150 for FREE? How can you turn that down?!
Credit card churning
If you aren’t familiar with the term, credit card churning means to sign up for a credit card just to get the signing bonus (whether it's points for airfare, cash back rewards, free nights at a hotel, etc).
There are definitely people out there who make a pretty hefty chunk o' change (or chunk o' flights) through credit card churning!
BUT-- there are also people who have tried and screwed themselves over.
Let's chat a little bit about the pros & cons of credit card churning, so you can make an informed decision the next time you get one of those too-good-to-pass-up offers!
You can theoretically earn a LOT of money/points/rebates doing this. It really doesn’t take much time to sign up for a credit card and use it for your normal purchases; if 10 minutes can net you $150, that's a pretty good return on your time investment!
It could help your credit score... One of the factors for your credit score is your debt utilization ratio: how much debt you have available to you vs. how much debt you are using. So if you have a bunch of credit cards with $5k or $10k limits, your available debt is really huge, which would give you a better debt utilization ratio. (but read on for the other side of the coin...)
It could be bad for your credit. I’ve heard that signing up for new accounts temporarily docks your credit score. So if you’re thinking of getting a loan or buying a house or whatever, having a bunch of new accounts on your record might hurt you. (I've read that you should stop signing up for new accounts 6-12 months before trying to get a loan)
You’ve gotta remember to actually pay the card off on time! Missing a payment and getting charged interest would absolutely negate any rewards.
There’s a lot of fine print. If I learned anything from my super annoying banking experience last year, it’s that banks are NOT going to tell you if you've signed up for the rewards card correctly! So you might THINK you’re going to get a bonus, but you don't. Womp womp. (no... I'm definitely not still bitter.. why do you ask? ;) )
You need to keep very close track of the certain number of purchases, amount of spending, or months to keep it open in order to get your bonus. That would suck to think that you've reached your spending target, only to find that you're $10 short of getting the bonus.
It's a hassle to open and close accounts. Yeah, I know you can do it online and it usually isn’t that hard, but that’s one more thing on your to-do list!
If you decide to keep the account open, you should probably try to use the card every once in awhile (and then remember to pay it off!!!). I've heard that keeping a credit card open and NOT using it can also hurt your credit score (so many things to remember!)
So... what's my final answer?
If you can tell from the uneven distribution of cons vs. pros... I think you can tell my opinion on the matter ;)
But I'm not you! Maybe all of those cons are worth it to you for the rewards. If so, more power to ya! Just be sure you're keeping track of EVERYTHING. Like I said, missing a payment is going to cost ya way more than any reward.
And you also need to take into account (heh heh-- ACCOUNT-- finance joke for the win!) your financial personality. Are you someone who repeatedly maxes out her credit cards? If so, adding another credit card to your arsenal miiiiight not be a good idea. You know you best-- really consider if you are ready to handle the responsibility of another card.
PS-- I'll be sending out August's MONEY SAVING CHALLENGE email tomorrow morning... are YOU on my email list? Click here to make sure you're signed up! :)