Dangers of "churning" cards for bonus points
By Helen Fowler
Opening and closing multiple credit card accounts to take advantage of introductory offers such as rewards points or a one-year waived fee might sound like a no-brainer. The practice -- known as "churning" -- is not great for your credit score. Most lenders don't like it either, and they're making it more difficult to do.
"One or two people have played the game and companies have cottoned on," says Andrew Hagger, of Money Comms. "There's a big outlay when companies give these promotional offers and the model wouldn't work if it was free for people to come back and apply again. They sign you up on hopes you stay and they recoup the investment."
For example, British Airways will not make welcome offers to anyone returning for one of its cards in less than six months. So, unless you're prepared to wait six months to reapply, you have one shot at the introductory offer from the British Airways American Express Credit Card: 9,000 Avios when you spend £1,000 in the first three months of membership. The same rule applies to the British Airways American Express Premium Plus Card, which offers 25,000 Avios when you spend £3,000 in the first three months of membership.
Lloyds TSB Duo Avios cards, which currently offer double Avios for the first six months, are also taking a tough line with anyone hoping to keep returning for their promotional offers: Customers are eligible for only one joining bonus. The same is true for MBNA-backed Emirates Skywards Elite Credit Card Account and the Emirates Skywards Credit Card Account.
Similarly, introductory rewards are not available on American Express gold cards if you currently hold, or have held in the past six months, any other membership rewards-enrolled American Express card.
Card companies are not just clamping down on doling out introductory offers to the same people repeatedly.
"Increasingly, credit card companies may have restrictions on how many cards they will issue to one individual in a certain time frame," says James Jones, head of consumer affairs at Experian.
Firms keep tabs on the number of cards owned by individuals, says Jones. Too many cards or loans look bad to lenders. "Card companies are not going to be too keen on someone going back to them again and again. Every time you apply for credit it's added to your credit report."
Churning can impose logistical difficulties, too. To "churn" cards successfully, you must control your spending and pay your bill on time and in full every month -- otherwise, you might end up with hefty interest payments that could negate any money you saved with introductory offers.
"With more cards, statistically, you are increasing your risk of missing payment," warns Jones.
Still, the signs are that consumer appetite for churning cards remains unabated. U.S. credit card providers often deal with about a 20% annual churn rate, according to research from Harvard Business School. The UK credit card market suffers more customer churn than any other sector, at an estimated 23% every year.
Published: 11 December 2013
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