Credit card churning: Can you get away with it in Canada?

What is credit card churning?

Credit card churners sign up for cards — often many at once — then earn the introductory bonuses, cancel the cards, wait until they can apply again, and pile up even more bonus rewards.

As part of their lather-rinse-repeat tactic, people who churn cards spend enough money to earn the sign-up bonuses each time, then pay off the cards before closing the accounts.

By churning cards, it's possible to earn free hotel stays, free flights, gift cards to your favorite retailers, or even hundreds of dollars in extra cash back — all within a relatively short time.

As you might suspect, the credit card companies aren't fans of churning and have instituted rules making it more difficult to open multiple cards during a certain time window or earn the same bonus twice within two or even four years.

How to churn credit cards successfully

Churning isn’t rocket science, but doing it well does require you to be on top of your game. Maximize your credit card churning strategy with the following tactics:

Frequently look for new card deals

The Canadian credit card landscape is competitive, and financial institutions jockey customers back and forth with attractive sign-up bonuses designed to lure your business. But most card issuers put an expiration date on these offers, so you should periodically check a running list of the best credit card sign-up bonuses in Canada to ensure you’re not missing out.

Grab cards with annual fee waivers

A credit card with a first-year annual fee waiver or rebate is the jackpot of the churning game, because you can get a huge bonus value without paying anything for it out of pocket. Other sign-up bonuses may still be worthwhile even if your first-year annual fee isn’t waived, but always do the math to ensure that the combined value of the bonus exceeds the annual fee you’ll pay, and focus on applying for cards with annual fee waivers first.

Meet the spending requirements

Most credit cards require the cardholder to charge a certain amount of purchases to the card within the first few months of card membership in order to qualify for the bonus. Set yourself up for success by assigning as much of your regular bills to a new card as possible, particularly larger payment sums, like insurance and utilities. You can also buy prepaid cards and gift cards for places where you shop regularly, but check with the card issuer to make sure these purchases are eligible for the spending minimum.

Focus on one rewards program

Earning a bunch of separate bonuses in different travel rewards programs might not take you to the heights you aspire, as most programs operate independently, and you likely won’t be able to combine their points or miles into that business class flight to the Maldives you’ve been dreaming about. That said, some rewards can be converted. A smart churner will combine sign-up bonuses from one program and another program, and then use their combined value following conversion for a major flight redemption.

How to mess churning up

Lucrative as it can be, churning can also be a slippery slope if you make one of these mistakes:

Skipping the fine print

Financial institutions are well aware of credit card churning in Canada, and many have included specific clauses in their cardholder agreements to try to prevent churning. A card’s fine print will typically indicate that although an applicant might be approved for a card multiple times, they can only get a card’s sign-up bonus once per lifetime. Carefully scrutinize a cardholder agreement’s phrasing before you apply, lest you reapply for a card you’ve already held only to find out that you’re not actually eligible for its shiny new bonus.

If you’ve previously received a card’s bonus, you can take a chance and apply again in the hope that the card issuer’s system won’t flag you as a prior cardholder, but the low likelihood of you sneaking through might not be worth the hit your credit score will take from the application.

Too many hard checks

Every credit card application results in a hard credit check, and although a few hard credit checks here and there won’t ding your score credit score too much when spaced out over the span of a year or so, having a bunch in a short period of time can be deleterious.

Some American banks have policies in which they deny credit card applications if a credit check reveals that an applicant has made more than a certain number of card applications in a period of one or two years. Although Canadian banks haven’t publicly commented on similar policies, they are speculated to take comparable approaches internally. After a certain number of card applications you might end up needlessly hurting your credit score without the benefit of being approved for the card.

Overextending

If you’re juggling too many cards with high spending requirements, you might not end up making the spending minimum on any of them, defeating the purpose of signing up for the card in the first place. And if the card doesn’t have an annual fee waiver, you’ll actually end up losing money.

Having too many cards also runs the risk of missing their monthly payments. It’s relatively easy to keep track of a monthly payment for one credit card; it becomes a bit more chaotic when you’re balancing five cards simultaneously. Missing card payments can result in heavy financial penalties from your bank, compounded interest over time, and serious damage to your credit score.

The risks of credit card churning

While credit card churning can work for some people, the system may be too complex for most to pull off.

Maintaining multiple credit card accounts involves keeping track of different minimum payments and monthly due dates — and any misstep can result in a drop in your credit or FICO score. We'll have more about that in the next section.

Another way churning can be bad for your finances is if you get slammed with fees. Rewards cards may have annual fees of $100 or more that could outweigh the cash back or other perks you’d earn.

Also, lenders have become wise to credit card churning schemes, and they tend to check new customers more thoroughly. If a credit issuer suspects you of churning, the company may deny your credit card application or limit the number of cards you can open.

Pros and cons of churning credit cards

Pros

• Competition among banks makes for a wide variety of sign-up bonuses in the market
• High potential for free rewards or accelerated cash back
• First year annual fee waivers effectively allow you to churn cards for free
• Rewards points or miles can be consolidated by converting points to other programs
• Having several credit cards can improve your credit utilization ratio

Cons

• Banks typically have clauses in place to prevent you from earning a card’s sign-up bonus more than once
• It may be unrealistic to meet the minimum spending requirements for several cards’ bonuses simultaneously
• Losing track of monthly payment dates can lead to financial penalties
• Balancing multiple rewards programs, spending requirements and monthly payment dates can be very time consuming
• Too many credit card applications in a short time can damage your credit score

How card churning affects your credit score

A credit score is a measure of whether you're likely to pay back loans. A low score means you're seen as less reliable with credit. If you accidentally mess up your score while churning cards, you could be turned down for an important loan, such as a mortgage.

Here's how the major credit reporting firms — TransUnion and Equifax — determine credit scores, and how churning can hurt:

35% of your score is based on your payment history. Forgetting to pay off any of your churned cards on time could deal an immediate blow to your credit score.

30% is based on how much debt you carry. Introductory offers usually encourage you to spend many thousands of dollars fairly quickly. If you can’t afford to pay off those balances right away, then you could end up owing a lot of money to multiple creditors. Accruing a lot of credit card debt is certain to impact your score negatively.

15% of your score is based on the length of your credit history — in other words, how long you’ve been using credit. Having a longer history is good, because credit reporting agencies know more about your spending and repayment habits. But opening many new cards to churn them will lower your "credit age" because you have lots of new ("young") accounts — and your credit score can take a hit.

10% of your score is based on the number of new accounts you’ve opened. If you have too many, credit issuers may assume you’re in financial trouble and need access to a lot of credit, and they can drop your score in response. Also note that whenever you open a new account, lenders do a heavy-duty review into your credit — and these "hard inquiries" can ding your credit score.

10% of your score is based on the types of credit you use. The credit bureaus like to see that you have a nice mix of credit: maybe a mortgage, a personal loan, a car loan, and so on. That's a good reason for not going all-in on credit cards.

Overall, if you're trying to build or improve your credit, it might not be a good idea to engage in credit card churning. Not sure what your credit score is? Borrowell provides your score and personalized credit reports for free.

When you really shouldn't churn credit cards

Because of all the things that can go wrong from credit card churning, it can be bad practice — particularly if:

• You’re thinking of buying a home and applying for a home loan. When a mortgage lender looks at your credit and sees lots of new credit cards and too much debt in relation to your income, the lender is more likely to reject your application.

• You have a ton of credit card debt, a bad credit history or issues with repaying loans. All of this stuff can torpedo your credit score and make it difficult for you to borrow when it's most crucial, like if your car dies and you suddenly need to buy a new one.

• You can’t spend enough to get the most from the cards. Introductory deals offered by rewards credit cards routinely require you to spend a large amount of money within the first 90 days. If you can’t afford to do that, you won’t collect the extra rewards — which is why you're churning in the first place.

• You’re not organized enough or interested enough to keep track of your daily spending, multiple payment due dates and other essential credit-related details. Unchecked credit churning can easily build up too much debt and missed payments — which can cause serious damage to your credit rating.

Learn more about churning

There are small Canadian communities online that share tips and leads about the best credit cards for churning. Reddit’s churning in Canada message board is particularly active, with daily discussion threads covering timely churning issues. The churning subreddit can, however, be a bit disorganized, so you can always email us if you have specific churning questions you’re struggling with.

Credit card churning FAQs

What is credit card churning?

Credit card churning is the practice of frequently opening rewards and cashback credit card accounts in order to take advantage of sign-up bonuses offered to new accountholders. Churners typically cancel a credit card account not long after they have received a card’s maximum attainable sign-up bonus.

Is churning credit cards legal?

Credit card churning is legal provided churners are truthful when applying for their credit cards. It is the responsibility of card issuers to design their products in a manner that either encourages long-term or short-term use, and to determine their own policies as to whom they approve and do not approve.

Can churning credit cards hurt my credit score?

Yes, churning credit cards can hurt your credit score when done recklessly. It can be difficult to keep track of making monthly payments on time when you are balancing multiple credit cards, and missing payments can precipitously decrease your score. Aside from that, every card application results in a hard credit card check, and incurring several hard checks in a short time can reduce your score as well.

What is the 5/24 Rule?

The 5/24 Rule refers to a supposed Chase bank policy of not approving an applicant for a credit card if said applicant has applied for 5 or more credit cards in the past 24 months. The policy has not been officially published by Chase, but it is rumoured to be used by employees internally.