Credit card issuers dedicate a lot of resources to securing new customers. Some of the incentives, like earning tens of thousands of points simply for signing up for a particular card, are hard to resist. But what if you could earn those sign-up bonus points again and again, without spending any extra money or taking a hit to your credit score? Sounds too good to be true, right?
It isn’t…at least if you do it right.
It’s called credit card churning and the process is relatively simple. And, as reported by the Globe and Mail, it’s not illegal in the least–despite how shady it all feels. Plus, if done right, it likely won’t even impact your credit score.
Here’s how to do it: Sign up for a credit card that offers a nice bonus like the MBNA Best Western Mastercard (20,000 sign-up points) or MBNA Alaska Airlines World Elite Mastercard (30,000 points after a $1,000 spend). After you’ve secured the bonus but before you’ve had to pay any fees, cancel the card. Then, once enough time has passed, sign up again online and cash in those sweet, sweet rewards once more. Wash, rinse, repeat, then go on vacation for free.
Of course, as with a lot of these make-a-quick-buck plans (or is it a scheme?), there are ways it can go wrong. First of all, not every credit card issuer allows churning–some block users from reaping the sign-up benefits multiple times. Second, if you already have bad credit, this may not be worth the points as each application for more credit will cause a “hard inquiry” on your credit score, which can negatively impact it, as can cancelling cards in under a year after signing up.
And even with cards from issuers that allow for the hack, if you neglect to cancel in time, you may end up paying an annual fee, which often kicks in after the ‘free’ first year. Or, if you spend on the card and don’t pay it back, the interest on the amount owing will chew up the points and wind up taking away from your vacation fund rather than adding to it.
In fact, this may be the reason credit card companies haven’t blocked these backchannels, because enough people do it incorrectly and wind up paying.
Still, if you’re litigious enough with your payments and cancellations, and your credit score is healthy enough, you may be able to put a credit card churning plan in place and earn some extra points. Then the only choice is whether to go on vacation or get a new vacuum.