credit card churning vs. credit rating

[lielec11]

So I have started to read about credit card churning on this forums and some other websites so see what the big deal is. I think to an extend, the effort is worth it, especially if you are looking to travel frequently. What I can't seem to understand is how it affects your credit rating.

According to Credit Karma my credit is in the "excellent" region above 750. I know this isn't the be-all-end-all site for credit ratings but I've found it to be pretty accurate comapred to the major sites you get to use once a year. The only category that doesn't have a grade of 'A' is "Age of Credit History", which is a 'B' because it is only 6 years 8 months on average.

My question is, by credit card churning, will this area of my credit rating get worse because I am constantly opening up new credit card accounts?

[kpd905]

Data Point:

I started churning March of 2013.  My first Amex card gave me my credit score, and it was 761.  A year later my score was about 790 according to the free FICO score I get with my Discover card. 

In the year between those two scores, I had signed up for about 18 cards.  I have gotten 12 free roundtrip flights, 19 hotel nights, and about $1500-2000 in statement credit between my cards and those of my fiance so far.  We still have somewhere around 1 million miles/points in our accounts right now (roughly $10,000 worth of travel at least).

The hard pulls when you apply to a card will hurt your score for the short term, but after signing up for 3-4 cards at once my score would be back up to normal after about 6 weeks, then it would usually climb higher.  As you get a higher total credit limit, you'll have a lower percentage of utilization, which helps the score.

[lielec11]

Data Point:

I started churning March of 2013.  My first Amex card gave me my credit score, and it was 761.  A year later my score was about 790 according to the free FICO score I get with my Discover card. 

In the year between those two scores, I had signed up for about 18 cards.  I have gotten 12 free roundtrip flights, 19 hotel nights, and about $1500-2000 in statement credit between my cards and those of my fiance so far.  We still have somewhere around 1 million miles/points in our accounts right now (roughly $10,000 worth of travel at least).

The hard pulls when you apply to a card will hurt your score for the short term, but after signing up for 3-4 cards at once my score would be back up to normal after about 6 weeks, then it would usually climb higher.  As you get a higher total credit limit, you'll have a lower percentage of utilization, which helps the score.

Interesting... so you're saying short term my score may drop some points, but it doesn't remain as a negative against the overall score in the long term? Is this solely due to the lower utilization limit? Right now mine is about 4% which I am assuming is fairly good.

To summarize, 12 flights + 1 million points + 19 hotel nights+2000 in 1 year? Seems like even with churning you'd have to spend a ton of money, no?

[Goldielocks]

Data Point:

I started churning March of 2013.  My first Amex card gave me my credit score, and it was 761.  A year later my score was about 790 according to the free FICO score I get with my Discover card. 

In the year between those two scores, I had signed up for about 18 cards.  I have gotten 12 free roundtrip flights, 19 hotel nights, and about $1500-2000 in statement credit between my cards and those of my fiance so far.  We still have somewhere around 1 million miles/points in our accounts right now (roughly $10,000 worth of travel at least).

The hard pulls when you apply to a card will hurt your score for the short term, but after signing up for 3-4 cards at once my score would be back up to normal after about 6 weeks, then it would usually climb higher.  As you get a higher total credit limit, you'll have a lower percentage of utilization, which helps the score.

Interesting... so you're saying short term my score may drop some points, but it doesn't remain as a negative against the overall score in the long term? Is this solely due to the lower utilization limit? Right now mine is about 4% which I am assuming is fairly good.

To summarize, 12 flights + 1 million points + 19 hotel nights+2000 in 1 year? Seems like even with churning you'd have to spend a ton of money, no?

RyanV. Clever of you to realize this unmentioned potential issue.  Spending on getting to bonus offers, and also on fringe travel costs too.

Also, churners-- need to be very on top of cc due dates annual fee start dates,  and such.  If you are perfect, churning should indeed improve credit scores in the long run.

Here are more hidden costs..:

12 flights x $60 average fuel and tax, assuming data point is very smart about this use.( seems to be, some surcharge run to $160 per flight)

19 hotel nights.... If for two people, averages to 3 nights away per trip x6 trips.  Maybe some more hotel nights were paid out of pocket, unless just staying with friends.. Meals? Entertainment? Taxis?

6 trips x 2 persons in one year?  Not very frugal?.  May have incurred costs to/ from airport, meals or other spend.   Maybe that was for 3 trips x 4 persons? (But it is  hard to book same flight, with more than 2 in reservation, FYI).

Use of casback rebates to fund extra travel costs is still using cash that could gave been spent on groceries.  Data Point doesn't claim it as free travel, but other posters do.

Can you get cash for 1 million points?

And finally...
1 million to 1.5 million points /18 cards is about 80k miles per card.  Again, the poster is very very good at this to find so many 100k bonus offers.

[johnny847]

OP, do you actually care about your credit score? It's only relevant if you're actually planning on getting a loan in the near future. If not, then apply away, since you'd only need your credit score for more cards. And it's a self correcting problem - if you have indeed applied for too many credit cards to hurt your credit score, then you won't get approved for new cards. I tell this to anybody who thinks I'm trashing my credit score by applying to a bunch of credit cards (because some people refuse to believe that cancelling a credit card won't necessarily drop your score).

Your credit score is made up of 5 things, in decreasing weight http://www.myfico.com/crediteducation/whatsinyourscore.aspx
1) Payment history
2) Credit Utilization
3) Length of history (your oldest card, newest card, and average)
4) Types of credit accounts (fixed monthly installments such as loans, variable charges such as credit cards)
5) Number of inquiries

Numbers 4 and 5 are actually tied in weight.
When you apply for a new card, you get an inquiry, which will drop your score by a small amount. It will also decrease your average age of account. However, if you have a card or two that has a long history already, this effect is minimal. On the up side, if you keep your spending constant, your credit utilization will go down, as you now have more credit. Credit inquiries stop affecting your score after one year, although they stay on your report for two years.
When you cancel a credit card you've churned, your credit score will probably go up as long as you drop your spending a bit. Why? Well your average age of account just went up (assuming that this card is younger than your average age of account, which it should be if you're churning it). But your credit limit went down, so your utilization will go up unless you drop your spending proportionally.
EDIT: When you cancel a credit card, a closed account ages with the rest of your accounts, but drops off your report in 10 years. So as long as you lower your spending proportional to the loss in credit limit, cancelling a card won't affect your score. http://ficoforums.myfico.com/t5/Credit-Cards/Closing-Credit-Cards/td-p/347190

Oh yea and Amex will backdate your cards if they can find records of the first time you opened an Amex. Any new Amex will be backdated as having been opened in the year in which you got your first Amex, and the month in which you actually applied to the new Amex. So it's possible to actually increase your average age of account by applying for an Amex. http://ficoforums.myfico.com/t5/Credit-Cards/Amex-and-Backdating/m-p/1124167#M313576


Another data point - I only started with my first credit card September of last year, and I just went on an app spree for four cards and now have eight. Credit score is 711 according to Credit Karma post app spree (but Credit Karma is only an estimate, which tends to underestimate in my experience). Score before app spree was 724 (actual TransUnion credit score from Barclays).

[lielec11]

OP, do you actually care about your credit score? It's only relevant if you're actually planning on getting a loan in the near future. If not, then apply away, since you'd only need your credit score for more cards. And it's a self correcting problem - if you have indeed applied for too many credit cards to hurt your credit score, then you won't get approved for new cards. I tell this to anybody who thinks I'm trashing my credit score by applying to a bunch of credit cards (because some people refuse to believe that cancelling a credit card won't necessarily drop your score).

Your credit score is made up of 5 things, in decreasing weight http://www.myfico.com/crediteducation/whatsinyourscore.aspx
1) Payment history
2) Credit Utilization
3) Length of history (your oldest card, newest card, and average)
4) Types of credit accounts (fixed monthly installments such as loans, variable charges such as credit cards)
5) Number of inquiries

Numbers 4 and 5 are actually tied in weight.
When you apply for a new card, you get an inquiry, which will drop your score by a small amount. It will also decrease your average age of account. However, if you have a card or two that has a long history already, this effect is minimal. On the up side, if you keep your spending constant, your credit utilization will go down, as you now have more credit. Credit inquiries stop affecting your score after one year, although they stay on your report for two years.
When you cancel a credit card you've churned, your credit score will probably go up as long as you drop your spending a bit. Why? Well your average age of account just went up (assuming that this card is younger than your average age of account, which it should be if you're churning it). But your credit limit went down, so your utilization will go up unless you drop your spending proportionally.
Oh yea and Amex will backdate your cards if they can find records of the first time you opened an Amex. Any new Amex will be backdated as having been opened in the year in which you got your first Amex, and the month in which you actually applied to the new Amex. So it's possible to actually increase your average age of account by applying for an Amex. http://ficoforums.myfico.com/t5/Credit-Cards/Amex-and-Backdating/m-p/1124167#M313576


Another data point - I only started with my first credit card September of last year, and I just went on an app spree for four cards and now have eight. Credit score is 711 according to Credit Karma post app spree (but Credit Karma is only an estimate, which tends to underestimate in my experience). Score before app spree was 724 (actual TransUnion credit score from Barclays).

The reason I care if that I am getting married next September and soon after will be purchasing my first home. So my credit score will mean a lot at that point. Otherwise, no I really wouldn't care.

Good to know about Amex, my main card is their premier rewards card so I may go after more of their mileage cards if they'll backdate my card opening.

And finally...
1 million to 1.5 million points /18 cards is about 80k miles per card.  Again, the poster is very very good at this to find so many 100k bonus offers.

That still seems like a TON of points to me, even with signup bonuses. I guess I need to do more research on this.

[schimt]

When you cancel a credit card you've churned, your credit score will probably go up as long as you drop your spending a bit. Why? Well your average age of account just went up (assuming that this card is younger than your average age of account, which it should be if you're churning it).

I have posted the same question as the OP and this is the piece of information i was missing and why it never made sense to me. If anyone else could chime in and verify that this is accurate, i would appreciate it.

My oldest account is almost 8 years old and newest 1 month with an average of 3 years and 3 months age. and that is 5 accounts. I assumed if you closed an account it would freeze the age in that calculation of the average. Meaning if you are churning 4 or 5 accounts a year, your age of credit score is going to hold very low with all of those 6 month or so aged accounts.

If closing an account actually removes the card and age from this calculation, I will be a lot less concerned about it's long term effect on my credit score if i do some temporary churning.

Thanks in advance!

[kpd905]

Data Point:

I started churning March of 2013.  My first Amex card gave me my credit score, and it was 761.  A year later my score was about 790 according to the free FICO score I get with my Discover card. 

In the year between those two scores, I had signed up for about 18 cards.  I have gotten 12 free roundtrip flights, 19 hotel nights, and about $1500-2000 in statement credit between my cards and those of my fiance so far.  We still have somewhere around 1 million miles/points in our accounts right now (roughly $10,000 worth of travel at least).

The hard pulls when you apply to a card will hurt your score for the short term, but after signing up for 3-4 cards at once my score would be back up to normal after about 6 weeks, then it would usually climb higher.  As you get a higher total credit limit, you'll have a lower percentage of utilization, which helps the score.

Interesting... so you're saying short term my score may drop some points, but it doesn't remain as a negative against the overall score in the long term? Is this solely due to the lower utilization limit? Right now mine is about 4% which I am assuming is fairly good.

To summarize, 12 flights + 1 million points + 19 hotel nights+2000 in 1 year? Seems like even with churning you'd have to spend a ton of money, no?

For spending, the last year was great for manufactured spending.  Each month I was sending $1000/month to my fiancé via Amazon Payments for no fee (this has since ended), and loading $2000/month to our Amex Serve accounts for no fee, we then pay off other cards with that money.  I was also buying $1000-2000/month in Visa gift cards ($3.95 fee per $500) and loading them to Evolve Money to pay my student loans (now limited to $500/month).

TL;DR:  For basically the last year to 1.5 years, we could put $5000/month of spending on our credit cards at a total cost of about $16/month to us.  When you use this to hit sign up bonuses, you get a pretty nice return on that $16.

RyanV. Clever of you to realize this unmentioned potential issue.  Spending on getting to bonus offers, and also on fringe travel costs too.

Also, churners-- need to be very on top of cc due dates annual fee start dates,  and such.  If you are perfect, churning should indeed improve credit scores in the long run.

Here are more hidden costs..:

12 flights x $60 average fuel and tax, assuming data point is very smart about this use.( seems to be, some surcharge run to $160 per flight) Most flights I've had were $5-20 in fees.  No international flights, those can be more expensive with fees.

19 hotel nights.... If for two people, averages to 3 nights away per trip x6 trips.  Maybe some more hotel nights were paid out of pocket, unless just staying with friends.. Meals? Entertainment? Taxis?  We did pay some hotel nights out of pocket.  Yes, we ate meals.  We mostly go to national parks, so entertainment is pretty low cost for what you get to see.  And we have never used a taxi.

6 trips x 2 persons in one year?  Not very frugal?.  May have incurred costs to/ from airport, meals or other spend.   Maybe that was for 3 trips x 4 persons? (But it is  hard to book same flight, with more than 2 in reservation, FYI).  It was 3 trips for the two of us, and then a few flights we booked for family members.  I will admit that we do spend a bit more eating out while on vacation, but I am not really worried about getting costs to zero.  If we get the flights, lodging and rental car for free, I am fine with going out for dinner each night.  Using the miles lets us enjoy a few vacations a year and still max out the 401k and send a few thousand a month to student loans.

Use of casback rebates to fund extra travel costs is still using cash that could gave been spent on groceries.  Data Point doesn't claim it as free travel, but other posters do.  I'm not sure what this means.  We are using any statement credits as cash to invest or pay my student loans.  The miles go toward travel.

Can you get cash for 1 million points? I could, but I would probably lose all of those accounts due to violating rules.  I will use the miles eventually.

And finally...
1 million to 1.5 million points /18 cards is about 80k miles per card.  Again, the poster is very very good at this to find so many 100k bonus offers.  This was 15 cards for me and about 15 cards for my fiancé in that time.  I don't think we signed up for any cards under 40,000 miles, most around 50,000, a couple at 70k and 80k.

[rmendpara]

Somebody correct me if I'm wrong, but when you go get a loan like a mortgage, they take into consideration much more than just your credit score, right?

Things like income, other debts, job stability, length, pay, assets, etc all are considered in the underwriting process for a mortgage... it's not as simple as "your credit score is XXX so your mortgage rate is Y.YY%".

It seems pretty easy to explain to a mortgage officer that you have tons of inquiries related to credit card bonuses, but if you pay on time, don't carry a balance, and have very low debt to income ratio, why would they not want to give you a loan?

[johnny847]

When you cancel a credit card you've churned, your credit score will probably go up as long as you drop your spending a bit. Why? Well your average age of account just went up (assuming that this card is younger than your average age of account, which it should be if you're churning it).

I have posted the same question as the OP and this is the piece of information i was missing and why it never made sense to me. If anyone else could chime in and verify that this is accurate, i would appreciate it.

My oldest account is almost 8 years old and newest 1 month with an average of 3 years and 3 months age. and that is 5 accounts. I assumed if you closed an account it would freeze the age in that calculation of the average. Meaning if you are churning 4 or 5 accounts a year, your age of credit score is going to hold very low with all of those 6 month or so aged accounts.

If closing an account actually removes the card and age from this calculation, I will be a lot less concerned about it's long term effect on my credit score if i do some temporary churning.

Thanks in advance!

Looks like I was wrong, see my edited post.

[johnny847]

Somebody correct me if I'm wrong, but when you go get a loan like a mortgage, they take into consideration much more than just your credit score, right?

Things like income, other debts, job stability, length, pay, assets, etc all are considered in the underwriting process for a mortgage... it's not as simple as "your credit score is XXX so your mortgage rate is Y.YY%".

It seems pretty easy to explain to a mortgage officer that you have tons of inquiries related to credit card bonuses, but if you pay on time, don't carry a balance, and have very low debt to income ratio, why would they not want to give you a loan?

While that's all true, I wouldn't risk it. If they listen to your explanation and don't care, and then give you a higher interest rate loan than what you would've had if you didn't churn credit cards, that higher interest rate will easily overcome the signup bonuses from credit cards.

OP, since you plan on buying a home soon after next September, I wouldn't apply for any new cards. And I'd recommend your future spouse do the same. Any new credit inquiry is another reason that a lender would extend you a higher interest rate. While it'd be nice to get some free cash/trips, a lower interest rate is worth far more.

[frugaliknowit]

Echo Magnum.

No one "KNOWS" what the churning might do to your credit score.  "Chill out"  if you are pretty sure you are going to apply for a mortgage.

[lielec11]

OP, since you plan on buying a home soon after next September, I wouldn't apply for any new cards. And I'd recommend your future spouse do the same. Any new credit inquiry is another reason that a lender would extend you a higher interest rate. While it'd be nice to get some free cash/trips, a lower interest rate is worth far more.

I think this is the course I will take, at least for the next year. Although it is clear there are benefits, managing 15-30 credit cards along with payments and purchases seems like more work that I'd personally like to worry about.

Thanks everyone else for your info as well.

[kpd905]

+1 to not doing this if you are getting a mortgage.  Whenever I think I might be 2 years out from applying for a mortgage, I am going to choose a few of my cards to keep, get rid of most of them, and stay away from any new applications.

[Goldielocks]

KPD - great detail!     

[arebelspy]

For us so far: Short term (3-4 months) credit dip, long term (6+ months) credit rise.  It matches what I've read elsewhere.

We've spent about 70k to hit minimum spends on about 20 cards, for 1MM+ miles that we're redeeming as 3000 cash and 700k miles.  (The 3000 cash is net after paying MS fees and any annual fees that aren't waived year 1.)

Well worth it.

I delayed a long time starting to travel hack, because it didn't seem worth it.  But it's easier than I thought, and more rewarding than I thought.  Wish I had started years ago.

[lielec11]

For us so far: Short term (3-4 months) credit dip, long term (6+ months) credit rise.  It matches what I've read elsewhere.

We've spent about 70k to hit minimum spends on about 20 cards, for 1MM+ miles that we're redeeming as 3000 cash and 700k miles.  (The 3000 cash is net after paying MS fees and any annual fees that aren't waived year 1.)

Well worth it.

I delayed a long time starting to travel hack, because it didn't seem worth it.  But it's easier than I thought, and more rewarding than I thought.  Wish I had started years ago.

If you don't mind me asking how long did it take you to spend the 70k and amass that many points?

[arebelspy]

About four months.

[lielec11]

About four months.

How does one spend ~$17,500 per month and live on this forum?

[arebelspy]

About four months.

How does one spend ~$17,500 per month and live on this forum?

Very carefully.

[johnny847]

About four months.

How does one spend ~$17,500 per month and live on this forum?

You don't have to actually spend $17,500 on merchandise or services. You can buy Visa gift cards, and there are various ways of liquidating those back to your bank account.So arebelspy isn't necessarily saying that he actually spends that much (and I assume he doesn't).

[aspiringnomad]

I had slow churned for many years, but decided to pick up the pace this year after being inspired by this forum. I have a relatively high income and good credit history so had always been automatically approved when applying, but seem to have hit an abrupt wall (after accumulating 160,000 points and $460 this year).  I was given a pending message by Chase during my last application. Thought that it would still go through after review but when I called to answer any questions the underwriter might have, I was outright rejected because of the new accounts on my record. Not sure what I did wrong, but I only had 4 open accounts at the time (granted, all opened within the past six months). Compared to others, that doesn't seem excessive. Maybe they knew I was churning because my credit utilization was low and weren't happy about it. But that should be a positive from the underwriter's perspective.  I've since closed the newest account in the hopes that doing so would up my average length of open accounts, but it sounds like that may not be the case. Was planning to close another account as the miles have just been transferred over. Would appreciate any thoughts as I'd like to go for he Southwest companion pass and that means qualifying for two new cards this year.

[Poorman]

+1 to not doing this if you are getting a mortgage.  Whenever I think I might be 2 years out from applying for a mortgage, I am going to choose a few of my cards to keep, get rid of most of them, and stay away from any new applications.

I currently work for a mortgage lender and wanted to know what the effects of churning would be on somebody applying for a mortgage.  Since I know the guys that set credit policy at my company, and they know our underwriting guidelines inside and out, I asked them.  Credit card debt is treated no differently than any other kind of debt.  What matters is how much the minimum required payment is if you carry a balance on the cards.  Now even if you pay in full each month, the underwriters may operate under the assumption that you will carry a balance and make the minimum payment.  Well, usually the minimum payment on a credit card is about 1% of the outstanding balance, so you're looking at a pretty small hit to your DTI ratio when applying for a mortgage, even with a large balance on a credit card.  As long as your credit score is above 740 and your DTI meets guidelines, you will still qualify for the best rates.

Here is my situation:  I started churning in May of 2014, signing up for multiple cards for both me and my wife.  Our FICOs were 760 and 810, respectively.  After getting the cards, our scores dipped by about 5-10 points each.  Since then, we have taken out two mortgages and a HELOC, getting the best available rates on all three loans.  The only thing we had to do was sign a letter of explanation because there weren't enough billing cycles for the new cards showing on our credit reports.  The letter just states that these were credit cards, not new mortgage applications.  That's it.

The only thing you want to avoid is applying for new credit cards (or any other debt) while your mortgage is in process because the lender will run your credit again right before funding and if any new inquiries are showing, the mortgage will have to be re-underwritten to account for the new debt in your DTI ratio.  They won't deny you the mortgage or automatically raise your interest rate, but it will drag the process out another 15-30 days.

[johnny847]

Now even if you pay in full each month, the underwriters may operate under the assumption that you will carry a balance and make the minimum payment.

Wait what? What's the logic in that?

[Poorman]

Now even if you pay in full each month, the underwriters may operate under the assumption that you will carry a balance and make the minimum payment.

Wait what? What's the logic in that?

Because it's the more conservative way to underwrite.  The reality is many, if not most, people do carry balances, so the minimum payment will be counted as your monthly debt obligation.  If you're worried that might put your DTI over the edge, then just keep your cards at $0 for a couple months before applying for a mortgage.

[Catbert]

Now even if you pay in full each month, the underwriters may operate under the assumption that you will carry a balance and make the minimum payment.

Wait what? What's the logic in that?

Because it's the more conservative way to underwrite.  The reality is many, if not most, people do carry balances, so the minimum payment will be counted as your monthly debt obligation.  If you're worried that might put your DTI over the edge, then just keep your cards at $0 for a couple months before applying for a mortgage.

If you check your credit report you'll see that each cc will report your balance as whatever it was at the time of your last statement.  There is now way that an underwriter would know what you've been doing with regard to min payment vs. total payment, much less what you plan to do in the future.

[johnny847]

Now even if you pay in full each month, the underwriters may operate under the assumption that you will carry a balance and make the minimum payment.

Wait what? What's the logic in that?

Because it's the more conservative way to underwrite.  The reality is many, if not most, people do carry balances, so the minimum payment will be counted as your monthly debt obligation.  If you're worried that might put your DTI over the edge, then just keep your cards at $0 for a couple months before applying for a mortgage.

I was curious about your assertion that many if not most people do carry balances, so I did some searching. This site cites a study which states that 39% of Americans carry credit card debt from month to month, as of March 2012. Unfortunately, their citation wouldn't load so I couldn't verify that.
But then again, lower on the page, it said 55% of males carry a credit card balance as of April 2012. And 60% of females. (I verified that this is what the study states). So....something doesn't add up here, unless the number of Americans that carry credit card debt dramatically increased in one month.