Credit card issuers come up with newfangled incentives and rewards to encourage credit card customer loyalty. The primary objective of the each credit card issuer is to find itself as the credit card you reach for first. Some credit cards offer cash back while others allow the cardholder to collect miles for a discounted or free airline flight. However, there are some credit card users who have no ‘credit card loyalty.
Slick credit card users grab a credit card with impressive perks, use the rewards, and then cancel the credit card account. They then find other credit cards boasting other generous promotions to take advantage of. Credit card flipping won’t break any laws, but the practice often exposes risks to a credit score if the credit card flipper chooses to neglect a few savvy tips designed to keep their credit profiles safe from falling into ruins.
Don’t mistake credit card flipping for ‘churning’ – which involves opening and closing the same account several times to receive multiple sign-on rewards. This process is frowned upon by credit card issuers. As a result, they are now proactively implementing ways to stop this process. Additionally, it is important to recognize that flipping credit cards is entirely different than another process known as rotating balances.
Balance rotators overuse each creditor’s balance transfer option to take advantage of lowered promotional rates while paying down a super large credit balance. Balance rotation can be prudent if you actually are paying down a balance rather than shuffling a similar balance over and over. In fact, FICO’s algorithm is designed to recognize balance rotation and typically penalizes the cardholder playing this game.
Flipping credit cards’ has a fundamental objective: – to yield bonuses and rewards as quickly as possible. In fact, many credit card flippers use a variety of cards but the smart ones always keep their credit card usage manageable.
If you begin to flip credit cards but you already maintain balances, you will find out shortly that flipping credit cards is unwise for those who carry credit card balances. The reason is simply financial. The rewards received by Flipping credit cards are essentially negated by the interest due each month on those outstanding balances. Most rewards generated by credit card spending require the credit cardholder to meet certain spending thresholds.
Exceeding 30% of the credit card’s limit can damage you credit score even if you pay your bills on time. In other words, to successfully flip credit cards (without damaging your credit score) it is important to ensure that the credit card limit of any card is high enough to make credit card flipping worth your while. Here is an example: If your credit card has a low limit and you must max out the limit each month to reach the rewards threshold, your credit score will suffer. Whereas if the card’s limit is $12,000, and you spend and pay off $3,000 per month, your credit score will avoid the hit.
Flipping a Credit card requires the opening and closing of accounts. However, a credit card flipper must be aware that the closing of an account reduces your overall, collective available credit, which will likely increase your credit utilization ratio. Ultimately, a rise in the percentage of available credit can negatively impact your credit score.
The opening of credit card accounts on a regular basis is a credit score ‘red-flag.’ Clearly, if you open a credit card every month, creditors will take notice and mark your credit profile that financial trouble might be brewing. Every time you apply for a credit card, the creditor will pull your credit report (known as a Hard Pull) to determine if you qualify for their credit card offer. Each hard pull dings your credit report a few points.
If a creditor notices many inquiries, they might deny your credit application or only offer you a low credit limit. To avoid this consequence, credit card flippers apply for several cards on the same day; before the credit bureaus can fully update your credit profile. This angle of credit card flipping carries significant risk and should not be practiced when you are in the market for a mortgage or a car loan.
It is imperative that you maintain a spreadsheet (or any other tracking device) that lists your credit cards, their due dates, annual fees and current balances. This spreadsheet should notate the rewards rules of each card. It is imperative to read the fine details to remain ahead of the curve.
Many credit card flippers are quite successful at racking up some serious points and rewards. However, credit card flipping is not for everyone. Here are some risks to consider before beginning your pursuit of rewards and bonuses:
Credit Card Flipping is likely to impact your credit score. Considering the many factors that impact your credit score, flipping credit cards may modify your credit score due to inquiries, and excessive utilization ratios, among others issues If you flip credit cards without remaining vigilant, the strategy just might backfire on you.
It Might Lead to Overspending. If you are managing several rewards credit cards that require a minimum spending amount to earn the rewards, you just might find yourself in a pressure filled situation to meet the minimum spending limits. If you spend to meet these minimum thresholds, and in doing so exceed your budget, you will find that you may have received the bonus points you were vying for, but are now left with a whole lot of debt.
Misspending reward points. Credit Card rewards vary from bank to bank, which can sometimes confuse the rewards beneficiary. Be careful when cashing in points, as you might use $550 bonus rewards for a $400 flight.
Flipping credit cards is a great strategy to use, if you take the time needed to micromanage the cards you hold. It is important to avoid carrying balances forward as those balances generate significant interest costs. There are some phenomenal benefits associated with credit card flipping IF you have the ability (and self-discipline) to pay the balances off each month.