It’s been a little over a year since I really got into my now favorite side-hustle of credit card churning. I thought it was time to sit down and hammer out my thoughts and lessons learned from my experiences.
Cash-back Rates vs. Rewards
Most all cards these days have some cash-back rate. It used to be that 1% cash back was awesome. Now, 1.5% seems standard for all purchases. Chase Freedom and a few others have rotating 5% cash back categories, and many cards have 2% or 3% cash back in permanent categories such as restaurants or gas stations. We usually only churn one card at a time, so I’ve ran into a dilemma often. Do I use my card that gets 5% cash back, or do I use the card I’m churning? The more I think about this, the more I think the cash back doesn’t matter when compared to the rewards rate.
Most cards I’ve been seeing the past few years have been offering $150 in rewards after spending $500. That’s a 30% cash-back rate! On top of that, you still almost always get 1% cash back. Even if you’re a bit inefficient, say you overspend on the card by $50, you will get $150 in intro rewards and 1% of the $550. This results in $155.50 in cash-back and rewards a rate of 28.27%. In fact, you get so much of a better rate with the intro rewards that you would need to spend eight times the intro amount to hit a cash-back rate of 5%, sorry Freedom!
Of course, if you’re not actively churning (or churning multiple cards) you should definitely use the card with the best cash-back rate! But, if you are committed to churning, cash-back rates are simply a red herring.
ECA and I have opened 15 cards since September 2016, a little more than one every other month. Considering most cards have a requirement of spending $500 in 90 days (with a few that require more), this results in an expenditure rate of about $315 per month, or $3,750 a year. Adding back in the higher limit cards like the Sapphires and the Bank of America (BoA) Travel Rewards and removing the cards that don’t require spending such as the Amazon Prime store card, that expenditure goes up to around $7,000 per year. Between two people, this rate is fairly easy to hit with groceries, gas, travel, and utilities. We top out at about $10k-$12k in expenditures per year that we can actually put on credit cards, so we’re being pretty efficient in our churning.
We almost always run over the limit by at least $50-$60. The worst run-over was my most recent churn with the BoA Travel Rewards card which I didn’t realize how the rewards worked. I ended up spending $250 more using it than intended. There’s also been a few times where we came up a little short of the limit with our normal spending. We haven’t lost any rewards, but to ensure we made it, we pre-paid our bills in advance, basically spending money earlier than we had to which could have been put in the market, still a better return though. The last bit of inefficiency is that we sometimes wait longer than necessary to open a new card, either because we’re afraid our spending won’t be high enough to meet the reward amount, negligence, or inability to get approval, which is rare, but has happened. Overall, I think we’ve got a mean churning machine, but there’s still a tiny bit of room for improvement!
Most cards don’t offer much, but there are a few notable ones. Rental car insurance, no foreign transaction fees, access to your credit scores, and trip insurance, are pretty commonly offered, sometimes on cards without annual fees. The best was the Chase Sapphire Reserve which provided TSA pre and access to airport lounges in addition to other perks. Getting the Sapphire also improves the rate of return of all Chase cards when you redeem the points for travel as you get 1.5x the normal rate and you can transfer points from all the other Chase cards.
The only card we’ve paid an annual fee on is the Chase Sapphire Reserve, but we actually broke even thanks to a weird trick. The annual fee for that card is $450, but Chase also offers a $300 annual travel credit when you use the car to pay for travel expenses. The trick is that the credit is on an standard calendar, but the fee is based on your start date. Since I opened my card in late February of 2017, we paid the annual fee and got the credit shortly after. Once 2018 rolled around, we got the travel credit again and I down-graded the card to a no annual fee account before the annual fee hit. So we managed to get $600 in credits for a $450 cost, netting $150! Unfortunately, we didn’t realize this was possible and the timing didn’t work as well for ECA’s card, so we ended up paying the $150. Oh well, we broke even on fees.
It is crucial to downgrade to a no annual fee account.
Down-grading or doing what they call a “product change” is the better way to avoid the fees since closing the accounts can negatively affect your credit score. It’s also a good idea to merge accounts when possible if you have multiple cards with the same bank since you often will not be eligible to open the same card again until you do so and wait quite a long time.
Leveraging free loans:
Although ECA and I have nearly crippling anxiety regarding loans, we’ve been taking advantage of the 0% APR period many cards offer. This has allowed us to put slightly more into brokerage account, thus reaping rewards in the growth of the market. Although this year had a rocky start, I estimate we’ve made about $100-$150 doing this. Not much in the grand-scheme of things, especially when compared to the rewards.
This did bite me once! Watch out that some cards offer 0% APR on balance transfers and some change their offer sometimes between purchases and transfers. I had one card which I thought was 0% APR on purchases. Ended up costing me 8 bucks before I realized my error!
If anything, churning has had only positive or no effect at all on my credit score. TransUnion has been hovering consistently in the range between 800-815 and FICO between 795-805 over the past two years.
I think the biggest feared risk is the increased exposure to identity theft, but that may not be a legitimate concern as the companies that have approved us for cards seem to have cracked down quite a bit. It’s actually rare now for us to apply for a card and be approved right away. We usually get a phone call, or need to call them, or even go to the bank in-person to get approved.
The second biggest risk is forgetting to pay off those 0% APR cards. The interest rate is high and missing that pay-off time would instantly lose all the gains for leveraging those. That’s not necessary for normal churning though, so I don’t think this is a universal risk with churning for rewards.
We also have a lot of cards we’re not using, I’m not always carrying around 10 cards, so those are at home, so there is some risk that a burglar could get to them. I don’t think this is likely and we’d be able to quite quickly stop the cards, but it’s still within the realm of possibility.
Overall, I think there’s very little risk to churning. As long as you’re a responsible person who will not buy things you can’t afford and will pay off the balance to avoid the APR, you should do it.
The Bottom Line
Over two years we have made nearly $5000 in reward bonuses! That is nothing to sneeze at. This is effectively tax-free income. We’ve also received a lot of side perks, making our trips more fun with lounge access and TSA pre. Stay tuned for my picks for favorite and least-favorite cards which I’ll do next time.