Although initially many people were perfectly happy using a single credit card for all their purchases, the concept of signing up for 3-4 credit cards in a year is slowly but steadily gaining colossal prominence. People prefer this new style of using credit cards because it helps them take advantage of signup bonuses. This is known as credit card churning. Although a few individuals may not be aware of it, this process is a fairly common phenomenon in the world of personal finance.
Here is everything you need to know to understand the concept and processes that revolve around credit card churning.
What exactly is credit card churning?
Theoretically speaking, credit card churning sounds like a relatively straightforward concept, but when it comes to putting it into practice, you may experience a few roadblocks. The trick lies in moving your regular expenses around between various credit cards. Fundamentally, it refers to making use of many credit cards that offer rewards. These rewards can be in the form of sign-up bonuses and airline miles.
Series of steps involved in credit card churning
To be eligible for sign-up bonuses, having a good credit score is imperative. Whenever anyone tries to opt for a loan, the banks should have business credit score explained to him well in advance. Then, all you need to do is follow these series of steps which primarily includes:
- Recognizing and signing up for credit cards that provide exciting sign-up bonuses
- Opening up as many of the credit cards as you can
- Spending the minimum amount that is needed to activate the bonus
- Canceling the credit card after you have availed the bonus
- Repeating the same process all over again
The advantages of credit card churning
There are many pros of credit card churning. Some of them include the following.
- It is easy and comes with minimal risk involved: Credit card churning is the easiest way to gain amazing discounts and bonuses. The credit card holder does not need to possess any real skill. In addition to this, the process involves minimal risk. It offers a continuous flow of passive income that you can spend on hotels as well as your travels.
- You can still maintain a high credit score: You can manage to carry out credit card churning and still keep up with a high credit score. Yes, there is no denying that opening new pathways for credit by purchasing a new card affects your credit score, this is a temporary impact. The bigger picture, which is the combined additional credit limits, works to minimize your credit utilization ratio. Making sure that you are paying down balances regularly is imperative in this case.
This is not to say that old credit cards do not offer bonuses, they do, but new credit cards only provide the best and most amazing offers.
You need to be on your guard and attentive whenever you try to utilize the knowledge of business credit score explained to you. It does not take long for the outstanding credit card debt to reach staggering amounts. You need to be organized, disciplined and possess excellent organizational skills if you want to rise above outstanding debts and the constantly changing rules of credit card churning.