While the practice has been around for a while, credit card “hacking” or credit card “churning” as it’s known in the US, has seen a resurgent interest online.
As Angel Zhong, a senior lecturer in finance at RMIT explains, credit card hackers will “open a lot of credit cards to take advantage of the bonus points and welcome offers”.
“But once they receive these welcome offers [or before being hit with an annual fee] they cancel the card and repeat this process again and again.”
What are the rewards?
Many cards will offer cash back schemes, but using travel cards to gain travel points is one of the most popular methods of card hacking, especially when some cards include welcome bonuses like 120,000 airline rewards points.
One credit card hacker claimed to fly business class from Brisbane to New York for $150, while others love the free access to airline lounges many cards offer. Some even include free travel insurance for the avid globe trotter.
What are the risks?
Damaging your credit score
When applying for a loan like a home loan, lenders will look at your credit score.
This is made up of the amount of money you’ve borrowed, how many credit applications you’ve made, and whether you pay on time. Having a large number of credit inquiries (so applying for lots of credit cards) in a short period of time, or not paying them back on time, can hurt your credit score.
Dr Zhong says even just one credit inquiry can reduce your credit score in the short term.
“So if you are considering buying a house and getting a mortgage in the next six months, I would strongly advise that you don’t engage in credit card churning.”
Are loyalty cards worth it?
Woman holds credit and rewards cards and a phone with a reward cards app on the screen for a story about loyalty programs.
Can you really get your money’s worth with reward or loyalty point programs?
Financial adviser and mortgage broker John Cachia agrees the practice could be frowned upon by lenders; while it’s not illegal, it does involve “manipulating the system”.
But he says simply owning a few credit cards isn’t the same thing as churning through them — even if your aim is to gain travel points. Hire a Credit Card Hacker
If you do own credit cards, he recommends reviewing them “at least twice a year” to make sure you’re getting the best benefits. Hire a Credit Card Hacker
“But if you’ve got 10, or 12, or 15 [cards]? That’s a totally different style of behaviour,” he says.
“A lender might assume you’re using credit cards to pay off the old credit cards.”
He also points out lenders will look at the total limits available to you, not your outstanding balance. So if you’ve got two credit cards with a $25k limit each open, that $50k is what will be included in your maximum credit limit, and might mean you can’t borrow as much on a home loan, for example. Hire a Credit Card Hacker
Overspending
To attain those juicy frequent flyer points, cards will usually ask you to meet a minimum spend — something like $2000 or $3000 over the first few months. Hire a Credit Card Hacker
In general, Dr Zhong warns you might end up spending more than you normally would just to reach these bonuses. Hire a Credit Card Hacker
