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

Bloomberg Businessweek (North America) - - Con­tents -

① Ap­ply for a credit card with a sign-up bonus

② Spend a grand in three months

③ Go to Mi­ami for FREE

④ Can­cel the card

Meet the “churn­ers” squeez­ing credit card is­suers for free stuff

“They want no one else to talk about it”

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

The bot­tom line Churn­ers go on­line to trade strate­gies for max­i­miz­ing card re­wards. The cost: tons of time and the risk of rack­ing up debt.

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