Does credit card churning really negatively impact your credit score? That’s a question I asked myself not too long ago.
It’s hard not to wonder when you see so many people blogging about travel hacks, so I decided to investigate myself…
But let’s back up for a second. About six months ago I promised myself I would travel more. During this time I was actually transitioning jobs and got a pretty decent signing bonus.
So, I decided it would be nice to travel. One of the first things I wanted to do was get a travel credit card (Chase Sapphire Reserve). I had never had one before.
I have heard all these stories about guys who churn travel credit cards like crazy. And the first thing that came into my mind was don’t they care about their credit?
Well, I decided to do some research and figure out what happens to your credit score when you churn credit cards.
What determines your credit score
Your credit score is dependent on a variety of factors including:
- Credit card use as a percentage of credit line (high impact)
- Payment history (high impact)
- Derogatory remarks (high impact)
- Credit age (medium impact)
- Total accounts (low impact)
- Hard inquiries (low impact)
So, when you take out a new credit card, here are the credit score factors that are impacted:
- Credit age: A new credit card will reduce the average age of your credit cards.
- Total accounts: A new credit card will increase the total number of accounts you have.
- Credit card use: A new card should increase your total credit limit.
- Credit card utilization: You have to spend to get many of the rewards with new cards. As a result, your credit card utilization could go up.
- Hard inquiries: A credit card application counts as a hard inquiry, which will lower your score by a few points.
My credit score wasn’t impacted
Before the holidays this year, I applied for the Chase Sapphire Reserve card. It’s a card with great benefits. And I really wanted the 50,000 bonus points (worth $750). All that was required was I spent $4,000 within the first 3 months of the card.
That wouldn’t be an issue as I hadn’t bought Christmas presents for anyone yet. Getting a new card like this is perfect for the holidays as your spending is probably going to be higher anyways.
Plus, since I was transitioning between jobs, I wanted to go on vacation…another perfect use for the card. I ended up settling on Aruba and bought tickets and a hotel on a whim!
So, what happened when I opened my new Chase Sapphire Reserve credit card? Well, the truth is not much. My credit score declined modestly from 792 to 782 (10 points).
That’s not a big deal. I’m eligible to receive the best rates on car loans and homes. In fact, I just checked my credit score today and I’m above 790 again.
How credit card churning impacted my credit score
So, why didn’t my credit score drop like a rock? Well, there were offsetting factors.
First, let’s go over the negatives. The overall age of my credit cards dropped. I think I was at something like 3.5 years before the new card.
After I got the Chase Sapphire Reserve, the average age dropped to around 2.5 years. Remember, your average credit card age will have a medium impact on your score.
The other impact was that my total number of credit accounts went up. Luckily this has a low impact on your credit score.
I also had a hard inquiry into my account, which pushed down my score a few more points.
Finally the positive impact of getting this new card was they gave me a huge credit limit. Chase gave me a $30,000 credit limit! That’s pretty crazy since most of my other cards have a credit limit of around $10,000.
I’m not complaining because it pushed down my average credit card utilization percentage (which has a high impact on your credit score). So net net, my credit score went down 10 points because of this new card.
However, after about two months of getting the new card, my credit score shot back up to over 790.
So in reality, getting this new card really didn’t impact my credit score or my ability to get financing at all. And I was able to make out with a great bonus reward for money that I would have already spent!
Not a bad deal! Although, I guess what I did wasn’t truly considered credit card churning since I only applied for one card. However, the concept is the same no matter if you do it once or multiple times.
What you should consider first
Before you consider credit card churning you should make sure you have a good credit score. If you don’t have a good credit score, your number one priority is to get as high as possible.
Also, keep in mind that some credit cards have annual fees. The Chase Sapphire Reserve card that I got has a $150 annual net fee. Be sure to close the account or downgrade the card to a version that doesn’t have an annual fee when you’re no longer using it.
All in all, credit card churning can sound exciting. However, it’s important to not spend extra money just to get the bonus points.
As long as you don’t have to change your spending habits, I would say credit card churning is actually pretty healthy.
Readers, what do you think? Have any of you signed up for a credit card just to get the bonus points? How did it work out for you? Let me know in the comments!