Can Credit Card Churning Hurt My Credit Score in Canada?


Credit card churning can hurt your credit score if you’re not careful. That’s because credit card churning is the act of frequently applying for new credit cards just to get generous welcome offers. Then you cancel the card before the annual fee is due. Not only does the practice subject you to multiple hard credit checks, but it can also impact your score in less obvious ways. Here’s how credit card churning can hurt your credit score and tips to do it safely.

5 Ways Credit Card Churning Can Damage Your Credit

In many cases, you are required to spend a certain amount of money on the card to qualify for the offer. While the financial rewards can be significant, there are also risks to consider. Below are 5 ways credit card churning impacts your credit:

1. Hard Credit Checks

Every time you apply for a new credit card, the issuer will perform a hard credit check to determine your creditworthiness. This is recorded on your credit report as an inquiry. This type of inquiry can cause a temporary drop in your credit score by a few points, regardless of whether the application is approved or declined. This means that even a declined credit card application following a hard check can negatively impact your score.

Too many inquiries in a short period can significantly drop your score because it is considered a red flag for financial distress. Thankfully, these hard inquiries will not impact your credit score for more than 12 months; however, they can stay on your Equifax report for up to three years and on your Transunion report for up to six years.

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2. Average Age of Credit History

Credit scoring models look at the age of each account and the average age of all your accounts. Older accounts have a positive impact because they provide a longer history of managing credit. Regularly opening and closing credit card accounts can reduce the average age of your credit accounts. Lenders tend to favour borrowers with longer, more stable credit histories because they’re less risky borrowers.

3. Credit Utilization Ratio

When you get a new credit card, the overall amount of credit you have access to increases. This can initially lower your credit utilization ratio, which is a measure of how much credit you’re using compared to how much you have available. Usually, this is a good thing for your credit score because low balances relative to the credit limits tell potential creditors that you are not overly reliant on credit.

However, many credit card welcome offers require that a certain amount must be spent on the card within a designated period to receive the offer. As a result, credit card churning can lead to overspending. This puts you at risk of increasing your utilization ratio, which can hurt your score if the balance owed is more than 30% of the credit limit. Closing a credit card after getting the bonus can amplify this effect, especially if your other cards have balances owing.

4. Debt Management

Minimum spend requirements also put you at risk of taking on more debt than you can manage. If you’re not able to pay the balance off in full each month, the interest charges negate the financial benefits of the welcome bonus and other rewards. Plus, sky-high interest rates can make it extremely difficult to pay down the balance and get out of debt. This can impact your budget and lead to financial distress.

5. Payment History

While credit card churning doesn’t directly affect your payment history, it can make on-time payments a challenge. With multiple cards to keep track of, you’re at greater risk of missing a payment. Even a single missed payment can negatively affect your credit score. Multiple missed payments can lead to a significant drop in your credit score and remain on your credit report for up to seven years. Spending too much on the cards can also lead to missed payments if you become overindebted and cannot keep up with minimum payments.

How to Churn Credit Cards Without Hurting Your Credit Score

Credit card churning offers a tempting array of rewards and bonuses. However, without a well-thought-out strategy, this practice might put a dent in your credit score. Here are some tips to help you maximize benefits while protecting your financial reputation.

Plan Your Applications Carefully

Research each card’s qualification requirements and potential benefits. Ensure you meet the credit score and income criteria to avoid declined applications, which can negatively impact your score. Instead of applying for several cards simultaneously, consider spacing out your applications. This approach minimizes hard inquiries in a short period and offers you time to manage each card’s spending requirements effectively.

Understand the Terms & Conditions

Carefully read the terms and conditions for each credit card’s welcome bonus and reward structure. Be aware of any limitations or special requirements for earning bonuses. This will prevent you from opening cards that don’t align with your goals or budget. You don’t want to apply for a card that requires you to spend more than you can afford just to qualify for the bonus. This can lead to debt which is costly and harmful to your credit score.

Monitor Your Credit Utilization Ratio 

Watch your credit utilization closely. Make sure card balances never exceed 30% of your credit limit. Even when trying to meet spending thresholds for bonuses, it’s vital to avoid unnecessary expenses. Ideally, you want to pay off your balances in full every month to ensure a low utilization ratio.

Pay Balances in Full & On Time

Always pay your credit card balances in full by the due date. This avoids interest charges that negate the value of your rewards, which defeats the whole purpose of credit card churning. It also helps maintain a good payment history which makes up the bulk of your credit score.

Keep Older Accounts Open

The age of your credit history contributes significantly to your credit score. Instead of hastily closing a card after reaping its bonuses, consider the benefits of keeping your oldest accounts open. Some cards, even with annual fees, may offer long-term benefits that outweigh the cost. If the fees become a concern, investigate whether the card can be downgraded to a free version.

Watch Out for Annual Fees

Many reward cards come with annual fees. Ensure that the benefits you receive outweigh these costs. Some churners cancel cards before the second year’s annual fee is charged, but this should be balanced against the potential impact on your credit score.

Keep Track of Card Details

Use a spreadsheet or an app to track details like application dates, annual fees, minimum spending requirements, payment due dates, and bonus deadlines for each card.

Watch Your Credit Score Like a Hawk!

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Keep an eye on your credit score to see how your churning activities are affecting it. Using free credit score monitoring tools can keep you updated and help you determine whether or not you should apply for another card. Also, regular reviews of your credit report will identify any inaccuracies and give you time to address issues before they develop into a major problem.

Consider Applying for U.S. Credit Cards 

If you frequently travel or do business in the U.S., consider applying for a U.S. credit card offering a generous sign-up bonus. These applications and their associated credit activities generally don’t impact your Canadian credit score. It’s another avenue to explore rewards without affecting your primary credit profile.

Final Thoughts

Credit card churning presents a unique opportunity to reap the maximum rewards from credit cards. While the allure of significant benefits is undeniable, it’s paramount to approach this strategy with caution and awareness. The effects of credit card churning on one’s credit score can range from negligible to substantial, depending on individual practices and financial management. By adopting informed strategies, regularly utilizing free credit score monitoring tools, and diversifying credit activities, Canadians can indeed enjoy the best of both worlds – reaping the rewards without compromising their financial health.

Heidi Unrau is a senior finance journalist at Hardbacon. She studied Economics at the University of Winnipeg, where she fell in love with all-things-finance. At 25, she kicked-off her financial career in retail banking as a teller. She quickly progressed to become a Credit Analyst and then Private Lender. This hands-on industry experience uniquely positions her to provide expert insight on loans, credit scores, credit cards, debt, and banking services. She has been featured in publications such as WealthRocket, Scary Mommy, Credello, and Plooto. When she's not chasing after her two little boys, you'll find her hiding in the car listening to the Freakonomics podcast, or binge-watching financial crime documentaries with a bowl of ice cream. Fun Fact: Heidi has lived in five different provinces across Canada and her blood type is coffee.