As I explained in My Introduction to Churning, signing up for credit cards can save you tons of money on travel and other expenses, but it doesn’t come without some risk. All of the risks can be avoided by planning ahead, staying organized, and not over-extending yourself, but if churning is brand new for you, this probably all sounds overwhelming. In this multi-part series, I will go into more detail about how to decide whether or not churning is for you, how to find a good offer to apply for, how to stay organized, and how to plan for the long term.
Getting Started With Churning Series
- Part 1: Maybe You Shouldn’t
- Part 2: Reasons You Should
- Part 3: Getting Organized
- Part 4: Making a Plan
- Part 5: Finding the Best Offer(s)
- Part 6: Planning For the Long Term
Part 4: Make A Plan Before You Start
Churning can generate a lot of different types of points and miles that will be spread across several accounts. You may be tempted to just start signing up for the biggest offers you can find, but those points and miles won’t actually do you any good unless you have a plan to use them. Now you don’t have to pick a travel date now and have a plan for every single mile you’re going to earn, but you should at least have a general idea of what you want to do with them. If you have a specific destination in mind, then working backwards from the cost of that trip is a good way to help decide what credit card to apply for next. If you know you want to take a trip in the next year or two, but have no idea where it might be to, then signing up for a flexible point earning card is probably a good bet. If you don’t think you’ll travel anywhere in the next year or two, then maybe you should just look for the best cashback offer that fits your habits. A good reason to have at least a general idea of how you will spend the points in the next year or two is ideal, because programs will occasionally devalue their points by changing the costs of the flights or hotels you will probably be redeeming them for. For this reason, the longer you sit with points in your account, the less they will probably be able to buy you. Below, I cover some of the other things to consider before jumping into your first application.
Have A Plan To Meet The Minimum Spend
Almost all signup offers require a minimum amount of spend to be put on the credit card in the first few months after applying in order to qualify for the bonus. Do you know how much you currently spend per month? I advocate tracking all of your spending simply for personal finance reasons, but it is especially important to at least have a general idea of your monthly spending that can be put on credit cards. If your typical monthly spending isn’t enough to meet the minimum spend, then what is your plan to add extra spending? The last thing you want is to get close to the 3 month mark and be several hundred (or more) short of meeting the minimum required for the signup bonus. This may cause you to buy things you wouldn’t normally, cancelling out some of the benefit of the bonus. It is possible to manufacture a little spend by pre-paying your bills or buying gift cards to use later, but make sure you are aware of these before you approach the end of the spending period.
Minimal Credit History or Only an Average Credit Score? Start Small
If your FICO score is near or below the 700 mark and/or you have a fairly limited credit history, then I recommend you start small and have a general idea of how to ensure your credit score keeps going up once you start. Applying for a no annual fee card such as the Chase Freedom or Discover It that you intend to keep for a long time is a good way to boost your credit score in the long term. This is especially important if you don’t currently have a credit card open that you intend to keep for a long time. The oldest card in your credit report has an impact on your score, so I don’t recommend signing up for a lot and cancelling after a year if you don’t have an older card or two that can mitigate the impact to your score. Once you have a no annual fee card or two and your credit has recovered from those hard inquiries, then you can start looking at the bigger signup bonuses that you will probably end up cancelling or downgrading a year later before the annual fee hits.
See Tracking and Understanding Your Credit Score for more information about the impact of churning on your credit score.
Once you’ve decided on either going for that big international trip, holding off on committing to anything specific and want flexibility, or value cash above any points or miles, then is time to start looking for the best signup offers that fit your goals. See Part 5 for some tips on finding the best offers currently available.