Question:
I read your introduction to credit card churning and I’d like to take advantage of some of the sign up bonuses offered by credit cards. I’m slightly worried about how it’s going to effect my credit score. My FICO score is 773 (equifax score from myFICO.com), I already have two credit cards and an auto loan. – Nick, Ohio
Answer:
Great question, Nick and we’re glad you enjoyed the introductory article. Credit card churning involves apply for credit cards with generous sign up bonuses, reaching the minimum monthly spends to activate these bonuses and then repeating the process.
Each time you apply for a credit card, the card issuer will do a hard pull on your credit report. This does effect your score negatively. Most people find their scores drop by less than 5 points, but the more recent searches for new credit the more it’s likely to effect your score, recent searches for credit makes up 10% of a FICO score. People with thin credit histories (e.g not a lot of payment history and only using credit for a short period of time) will notice that their scores drop by more than this. That’s because the FICO scoring algorithm puts additional weight on “recent searches for new credit” for people with thin credit reports.
Thankfully this drop is not a permanent one, most people find that after three months their score has recovered the majority of points and by the six month period it has completely recovered any drop. Credit inquiries drop off credit reports after a period of two years, but only effect FICO scores for the first 12 months.
Another thing to consider is that applying for and getting approved for a new credit card will also lower the AAoA (average age of accounts), how much will depend on the amount of credit accounts currently on your credit report. This falls under “length of credit history” and accounts for 15% of a FICO score, although they also look at the age of oldest account and this is the more important than the AAoA.
Credit card churning is a great way to earn some extra money or points to put towards a holiday. If you’ve ever wanted to fly first class or stay in a luxury hotel, then it’s the best way to do it on the cheap (or for free).
If you have any other questions about how credit card churning effects credit scores or want to ask any other question, contact us or comment below.
