I remember the day my high school Economics teacher explained how the credit cards system works. While the overarching idea is pretty easy to understand considering how commonplace the concept and reality of credit cards is, the key sticking point I learned is that for many Americans, credit cards are a slippery slope that will entrap you in what many deem “the rat race” – an inescapable cycle of liabilities that never allow you to find financial freedom. However, because the credit business is highly lucrative and profits off of vendor fees and those who do not understand or mismanage their credit, the competing companies offer incredible bonus and rewards to lure in consumers. In this blog post, I am going to teach you how to take advantage of this system and discount all of your future purchases by up to 45%. The system we built greatly rewards those who do understand how to manage credit and relies on the fact that the majority of the population is financially illiterate, or sometimes, have no other choice.
Before I get into the nitty-gritty, I implore you to check out my blog post on the components of credit score to understand why credit card churning is actually beneficial to your financial health, especially if you are just starting on your credit journey.
The idea behind credit card churning is that many companies offer massive bonuses after you spend a certain amount of money on your new card. They count on consumers either being too lazy to pick up a new card after receiving one, not knowing the benefits of accumulating credit cards, or missing a payment and paying insane annual interest rates of +20% and not even being able to consider spending more as they are trapped in a vicious debt cycle.
By churning credit cards you are; increasing your number of open accounts, dampening the effect of new credit cards on your average credit age history, building credit history, increasing your overall credit limit so you can decrease your credit utilization, and in effect getting +40% off of all of the money you spend!
This is how to Credit Card Churn:
Here is a rank ordered list of the top credit cards I have come across.
Let’s take for example the:
Chase Freedom Unlimited Credit Card
Chase offers a $200 bonus after you get the card and spend $500 in the first three months of owning the card. That’s in essence a whopping 40% off of the $500 that you spend!
On top of that you get 1.5% cash back on every purchase, and a lot more perks I will outline in my more in-depth blog post about credit card perks.
This means if you spend $500 on anything within three months of signing up for the Chase Freedom Unlimited credit card, you will receive $207.50 in statement credit and essentially be getting 41.5% off all of your purchases!
After spending $500 on things you would spend normally, AND ALWAYS PAYING IT OFF IN FULL, retire the card, stick it in a drawer, and make sure to use it once every two years or so (depends on the company) to make sure that the card does not get deactivated. Since I spent that $500 on things I would have spent anyways, Ta-Da! Its free money!
In summary, by credit card churning I bolster my long-term credit score (but not short term as I take a small ding for the hard credit check and my average credit age history drops), and get huge discounts on everything I purchase, and nowadays I purchase EVERYTHING on credit. I just make sure that I do not spend money I do not have and again, ALWAYS PAY MY BALANCE IN FULL ON TIME. Never ever miss a payment as your credit score will take a huge hit, and never put yourself in the position to be paying crazy high interest rates – you will not come out on top. If you want to learn more about how credit card churning affects your credit score, read my blog post on How to Maximize your Credit Score.