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The danger of playing the credit card rewards game

If you've got good credit, companies will offer you incentives to use their cards. Is there a risk, and are the rewards worth it?

By May 20, 2014 11:32AM
This post comes from Gerri Detweiler at partner site on MSN MoneyOne of the perks of having high credit scores is you'll get lower interest rates on things like car loans, mortgages and credit cards. And in the case of credit cards, many issuers who are after your business offer generous "sign-up bonuses," leading some people to chase the big rewards.

Stack of Credit Cards © Fuse, Getty ImagesIn some cases, they'll apply for a card that has an annual fee that is waived the first year, cancel the card and then go for a competitor's big sign-up bonus. The rewards can be tempting (especially from some of the best cash-back credit cards in America).

But most of us know that rewards often come with an unwelcome companion: risk. Is it risky to try to claim these bonus rewards? In general, you have to have very good credit in the first place to qualify for the cards that offer the big rewards. So is there a risk in taking the incentives card issuers are offering?

There can be, says credit card expert Barry Paperno, who cautions, "It should also be understood that the scoring risk from churning is more likely to be a lower score -- all other things being equal -- than you would otherwise have without the continual flow of new and closed accounts on your credit reports."

Before you apply, it's a good idea to find out if you can afford to lose a few points on your credit scores.  If your score isn't in "very good" or better territory, churning is almost certainly not a good idea for you. 

Paperno is not saying that churning is a bad idea, but he is saying that it's not for everybody. If you're considering it, it's just as important to take a hard a look in the mirror as it is to understand exactly what you have to do to qualify for those enticing incentives. Because the only people who should even attempt such a strategy are those "who can not only make their payments on time, but also pay their balances off each month without incurring finance charges, since, after all, the purpose of churning is to save money," he said.

If that's you, and your credit score is high enough so that a bit of a drop will still leave your credit at "very good" or better and you don't plan to apply for any other big loans in the near future, go ahead. If that's not you, then chasing the sign-up bonuses could end up costing you in the long term -- rewards cards tend to charge higher interest, and if you forget to cancel, you may pay a hefty annual fee that could easily top $100 for premier cards.

As if losing money on the deal weren't bad enough, chasing bonuses could potentially hurt your credit in two scoring categories: length of credit history and new accounts (history of searching for credit).

Length of credit history makes up about 15 percent of your credit score, so a strong payment history (35 percent of your score) and low credit utilization (30 percent) can help counter the shorter credit history that will result from new cards.

Your history of searching for credit makes up about 10 percent of your score. Just opening a new account (or applying for one) causes a small, temporary drop in your credit scores, Paperno said, "It is also helpful to keep in mind that while 'good' scores are indeed possible for a credit report containing multiple recently opened accounts, to get a 'very good' score (750+) you should not have more than an occasional recently opened account."

Some people are able to collect big rewards and maintain good credit while churning -- but it's important to understand the rules and to be aware of your own habits before you get in the game.

More from

May 20, 2014 2:23PM
It doesn't matter whether churning will hurt your score or not.  I recently dropped a vendor that insisted on not offering me the best insurance rate because of the "number of accounts marked paid as agreed" in a consumer report.    With a FICO credit score of 823, which can't get much better,  the insurance company used the many accounts I've held over the past 30 years as an excuse to charge me higher rates even though I have an excellent credit score.  It wasn't a lower score that they used as an excuse!  Instead, it was the churn in the report that they used as an excuse for charging me a higher rate.   People with low scores are a bad risk.  That's why they have low scores.  However, vendors also use nonsensiscal  excuses to charge people with good scores higher rates while blaming it on information contained in a consumer report.  They are required by law to allow you to dispute their claims.  What would I argue?  That I haven't paid all my bills in full and on time for the past 30 years?  The consumer credit report is one of the biggest consumer frauds ever perpetuated on the American consumer!  Why would any vendor pay for a service they couldn't use to justify charging higher rates?  
May 20, 2014 2:11PM
CAUTION!!! The best way to handle credit cards for perks. We have two Chase Southwest visa CC's. Fortunately we are able to watch our spending, pay off the balances and get free flights with the award points. It is so enticing to get cash back, points towards purchases and low interest sign up interest rates. We suggest you spend no more than you would if you were paying with cash.
May 20, 2014 2:11PM

My wife and I churn several cards every year and we still manage to keep our credit scores above 750.  Our house is paid for and we purchase cars with cash so we don't really need a good credit score but in order to keep getting the good bonuses you need to keep your score above 750.  I would not recommend the churning game to anybody who will have the need to secure financing for an important item in the near future.

May 25, 2014 12:24AM
My credit score has gone up from from 806 to 830+ after churning 20+ cards in the last 3 years to the tune of $10,000 worth of free stuff. Churning actually helps your score. Only in America.
May 25, 2014 2:39PM
A few years ago CITI BANK offered airline points for depositing $10,000.00.  Then at the end of the year they sent a 1099INT form for what CITI BANK thought the points were worth.  They inflated the worth and sent me a 1099INT for $600.00.  In the end it cost me $125 in additional taxes.  News media outlets wrote articles about this deceptive practice.  Luckily my tax attorney declared the inflated $600 interest then removed it.  IRS accepted this. 
But how many CITI BANK depositors ended up paying to put money in CITI BANK hands.  And CITI BANK benefited from the inflated imaginary cost of airline points as a loss.
I withdrew my monies from this bank robbing company and have not put a dime in since.

May 25, 2014 2:40PM

this is called enslavement by the bankers. the best way to become freer is not to borrow money!

the bankers are con artists of the first class and it is up to you not to fall into their trap.

May 25, 2014 4:34PM
This would be crazy and not worth the hassle.... Play it safe, if you must use a card get just one and pay for your purchases monthly without being late. 
May 25, 2014 5:05PM
Credit cards = cancer of the wallet
May 26, 2014 12:18AM
Jun 16, 2014 7:51PM
The credit score is a scam.  You keep reading and you will encounter some analyst that will claim it hurts your credit score if you always pay your credit card balance off at the end of the month.  Instead, they claim you will have a better score if you go in debt!  Now how backwards is that? Someone in debt is a better credit risk than someone that isn't in debt?  Give me a break!  I'm tired of hearing nonsensical claims from the credit industry!
May 26, 2014 7:38AM
Axis Mann say"People with low scores are a bad risk.  That's why they have low scores.  However, vendors also use nonsensical  excuses to charge people with good scores higher rates while blaming it on information contained in a consumer report."

Well this post is typical of the BS we see in today's World. I was all for this post until I read the high and Mighty, holier then Everyone else part. AMann really have no idea why a Given Person might have a low or Zero Credit Scores. Some folks just pay everything in CASH. This constant Stupidity by some posters to only see the Fraud when it applies to them and not anyone else, that's what's dumbing down this Country to levels not seen since the Stone Age.

Fact is, if Bogus Credit Agencies were Sued by a National Class Action Lawsuit for any and all False Information on a Report that break current Law, a ton of BS by them would stop, basically Immediately. I have very little care nor concern for a poster that thinks somehow they are cream of the Crop and everyone else is Chopped Liver. The poster really has not clue to what anyone else has gone through in life nor why.

Bogus Credit Scores are being used to charge folks more for Insurance rates, to justify Usury rates on Loans, and to even deny folks gainful employment. Folks better get a clue real Fast to the BS which is Credit Scores. A National Class Lawsuit against them would be a great start. If would make them think twice about having false and misleading information on anyone's report.
May 25, 2014 8:55PM
Before the bank cards, there were department store ones without teaser interest rates or perks. My parents might used one or two on a regular basic and the bills got paid off ASAP. Now a few times they would attempt to use one of their other store cards and be told the account was closed. Almost always to quite my father cursing, a manager would reopen the account and my parents would leave with the merchandises. 
May 26, 2014 11:09AM
"In some cases, they'll apply for a card that has an annual fee that is waived the first year..."

First, WHO is foolish enough to pay an annual fee ANY year?

Second, keep frequent track of both your total spending and your credit card balance (a former credit card thief recommends Intuit's free to keep track of several things at once. See:  Keeping a budget and frequent checking can replace the braking effect of taking cash out of your wallet.

I save a couple hundred each year with cash-back credit cards.
May 25, 2014 10:00AM
This article makes absolutely no sense as usual.  It's stupid so don't believe a word of it.
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