“Churn­ers” share tips on­line for maxing out free­bies from credit card is­suers

▶▶Meet the “churn­ers” squeez­ing credit card is­suers for free stuff ▶▶“They want no one else to talk about it”

Bloomberg Businessweek (Asia) - - CONTENTS -

Dan Miller, who’s mar­ried with six kids, lives in Cincin­nati. Their fam­ily re­union was at Lake Ta­hoe. Get­ting eight peo­ple across the coun­try would have cost a small fortune. So he churned them there.

Miller is a credit card churner, one of thou­sands of peo­ple who try to pry travel, cash, and other perks from credit card re­wards pro­grams. Their com­mon traits are a keen eye for deals and an ob­ses­sive de­ter­mi­na­tion not to pay when they can make some­body else do so. They meet up on­line to share strate­gies, in­clud­ing in a Red­dit fo­rum that has 42,000 sub­scribers, dou­ble the num­ber a year ago. Miller, a com­puter pro­gram­mer, writes a blog about it—one of dozens on the sub­ject.

Still, many churn­ers on­line urge one an­other to be se­cre­tive about their hobby, wor­ry­ing that if it gets too pop­u­lar, card com­pa­nies will end the free­bies. The idea is to take out credit cards that of­fer gen­er­ous re­wards at sign-up, squeeze out as many perks as pos­si­ble, pay the bills in full, and then move on. A churner can ac­cu­mu­late dozens of cards in the process.

“I thought there’s no way you can ap­ply for that many cards,” says Frank Lep­par, an­other blog­ger who’s signed up for 16 cards over the past 16 months and racked up more than 2 mil­lion re­wards points. He just got back from a free trip to Ja­pan and is plan­ning an­other to Italy. Get­ting ap­proved “is not much of an is­sue,” he says. “They don’t stop you at all.”

With credit card com­pa­nies of­fer­ing some of their most gen­er­ous perks ever, churn­ing is in­creas­ingly al­lur­ing. It can be risky. There’s the temp­ta­tion to spend more to amass more re­wards; if that leads to car­ry­ing a bal­ance, re­wards cards tend to levy higher rates than other cards. Hav­ing mul­ti­ple cards means there are mul­ti­ple chances to trip up and make a costly late pay­ment. Mort­gage lenders don’t like to see too many cards. At worst, a would-be churner could let debt spi­ral out of con­trol and ruin her credit rat­ing.

Churn­ing can start sim­ply. To get a credit card’s sign-up bonus of 30,000 re­deemable points, for ex­am­ple, you might need to spend $1,000 on the card in three months. Easy enough. To re­ally pile up the re­wards, you need to ap­ply for sev­eral, sim­i­larly gen­er­ous cards at the same time. Miller and his wife have 43 cards, not count­ing more than 20 they’ve opened and closed in the past few years.

The Millers took out two South­west Air­lines re­wards cards that came with 50,000-point sign-up bonuses. They did some­thing sim­i­lar with Chase cards, whose points can be trans­ferred to book South­west tick­ets. All that, and a com­pan­ion pass earned from South­west’s re­wards pro­gram, got the eight Millers to Lake Ta­hoe and back. It was eas­ier to fly out of Chicago, 300 miles from home. So they used points from a ho­tel credit card to cover overnight stays near the air­port be­fore and af­ter their flight.

Banks gen­er­ally won’t let peo­ple take out lots of cards un­less they have stel­lar credit. Even for a dili­gent bor­rower, read­ing the fine print and op­ti­miz­ing so many credit cards and re­wards pro­grams can be a huge un­der­tak­ing. Lep­par and Miller say they spend an hour or more a day on their hobby, and that’s af­ter years of prac­tice. Some churn­ers keep spread­sheets to track their cards. On churn­ing fo­rums, “ev­ery­body wants in,” says Lep­par, who used to help run the Red­dit group. “And then when they get in, they want no one else to talk about it.”

Do banks care? “The banks would be hap­pier if it didn’t hap­pen,” says Ed­ward Ni­e­s­tat, a pay­ments con­sul­tant at No­van­tas, a bank ad­vi­sory firm. “But no­body is los­ing a lot of sleep about it. Th­ese guys think of them­selves as big­ger he­roes in their own mind than the bank ever thinks of them.”

Sean Clark, a se­nior man­ager at the Auriemma Con­sult­ing Group, says banks are us­ing re­wards to com­pete for a valu­able de­mo­graphic: af­flu­ent con­sumers who travel of­ten and put a lot of pur­chases on their cards. Churn­ers re­main a tiny frac­tion of this mar­ket. Many peo­ple don’t want the headache of maxing out dozens of re­wards pro­grams, he says. The re­wards may sim­ply en­tice them to put more on their plas­tic, let­ting the is­suer earn more

in­ter­est on bal­ances. Ac­cord­ing to a Fed­eral Re­serve Bank of Bos­ton pa­per, two-thirds of all card users age 25 to 50 carry a bal­ance.

That said, there are signs the big is­suers have had enough of hard­core churn­ers. Churn­ing sites are full of spec­u­la­tion about a new rule at JPMorgan Chase that they say cuts off new cards to any­one who’s ap­plied for five oth­ers in the pre­vi­ous 24 months. Paul Hartwick, a Chase spokesman, says he couldn’t con­firm the rule, but adds, “We may de­cline cus­tomers who have ap­plied for mul­ti­ple cards in a short pe­riod of time.”

Churn­ers should still be able to get some nice perks, ac­cord­ing to Lep­par, but it’s get­ting harder. “For peo­ple who game the sys­tem,” he says, “it may be over as I know it.” Ben Stev­er­man Fit­ful fi­nan­cial mar­kets and signs of a real es­tate slow­down in south­west Florida so un­nerved Cana­di­ans Fab and Christa Michetti that in March they sold one of their two va­ca­tion homes there. The iso­la­tion­ist talk in the U.S. Repub­li­can pri­mary cam­paign didn’t help calm them ei­ther.

“How safe are my as­sets go­ing to be with the change in the po­lit­i­cal land­scape?” asks Fab, a re­tired Ford Canada em­ployee, who de­clined to dis­cuss in­di­vid­ual pres­i­den­tial can­di­dates. He also pointed to the Amer­i­can dol­lar’s strength—it’s raised the pay­off, in Cana­dian dol­lars, from sell­ing his house. “I’d rather have my money in my pocket,” he says.

Cana­di­ans who col­lected Sun Belt bar­gains af­ter the 2007-09 hous­ing crash have shifted from buy­ing to sell­ing. They’re lock­ing in gains from real es­tate ap­pre­ci­a­tion plus the 30 per­cent rise in the green­back vs. their home cur­rency over five years. The stronger U.S. dol­lar has also made main­te­nance costs, prop­erty taxes, and home­own­ers as­so­ci­a­tion dues on U.S. homes more ex­pen­sive for Cana­di­ans.

“The Cana­dian way is you use com­mon sense,” says Carol Bezaire, vice pres­i­dent for tax and es­tate plan­ning at Macken­zie In­vest­ments in Toronto. “If you made a profit, how much do you need to make be­fore you de­cide to pull out? You get the money out and get it work­ing some­where else.”

Naples, Fla., where the Michet­tis sold their house, has been one of the hottest sec­ond-home mar­kets in Amer­ica, thanks in part to Cana­dian “snow­birds” es­cap­ing the cold winter. Prices rose 8 per­cent over the past year—but sales volume plunged 19 per­cent in the first quar­ter, pos­si­bly a sign of slower ap­pre­ci­a­tion ahead. Wan­ing in­ter­est from Cana­di­ans has ex­ac­er­bated an in­crease in the in­ven­tory of homes for sale, which is up 33 per­cent from a year ago. Trans­ac­tions are also down in on­ce­boom­ing get­away cities such as Palm Springs, Calif.

In the Phoenix area—which in­cludes Scotts­dale, pop­u­lar with va­ca­tion­ers— Cana­di­ans pur­chased only 110 homes in the first quar­ter, down from a peak of 1,454 in the sec­ond quar­ter of 2011, ac­cord­ing to Mike Orr of the Crom­ford Re­port, a web­site about the re­gion’s hous­ing mar­ket. Sell­ers from Canada out­num­ber buy­ers 5 to 1, he says.

The pull­back among Cana­dian buy­ers comes at a pre­car­i­ous time for pricey U.S. va­ca­tion-home mar­kets, as soar­ing prop­erty prices and stock mar­ket volatil­ity give dis­cre­tionary buy­ers pause. Last year about 920,000 va­ca­tion prop­er­ties changed hands na­tion­wide, down al­most 19 per­cent from a high in 2014, ac­cord­ing to the Na­tional As­so­ci­a­tion of Real­tors (NAR).

“They gave us a hey­day for a while,” Kelly Trem­b­ley, a real es­tate agent with Ben­nion Deville Homes in La Quinta, Calif., says of buy­ers from the north. When he meets other agents now, he adds, “they’re all say­ing, ‘Any­body got any Cana­dian buy­ers?’ ”

In­ven­tory be­gan ris­ing at the end of last year be­cause va­ca­tion­ers saw an op­por­tu­nity for a cur­rency play, says Joshua De­vane, an agent with Ben­nion Deville who works in the Palm Springs area. The U.S. dol­lar in Jan­uary was at its high­est level rel­a­tive to the Cana­dian cur­rency since 2003. “Ev­ery­body got the same idea, and in­ven­tory in the mar­ket be­came a lit­tle bit flooded, which makes it dif­fi­cult to move prop­er­ties,” says De­vane.

Un­til last year, Cana­di­ans were the top in­ter­na­tional buy­ers of U.S. real es­tate. At 14 per­cent of for­eign sales, they’ve slipped to No. 2, be­hind the Chi­nese, ac­cord­ing to an NAR sur­vey.

The loom­ing U.S. elec­tion may be speed­ing up the de­ci­sion to sell. “If Mr. Trump does be­come pres­i­dent, do you have visa re­stric­tions, and does that im­pact snow­birds?” asks Bezaire of Macken­zie. Lawrence Yun, chief economist for the NAR, says such

un­cer­tain­ties give Cana­di­ans an extra push “to make the de­ci­sion this year rather than af­ter the elec­tion.”

Fab Michetti says he’ll con­sider buy­ing again if there’s an­other down­turn. “It’s a gut feel that says, ‘If you’re not cer­tain of things, get on the side­lines and watch the pa­rade go by,’ ” he says. Prashant Gopal

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