Is Credit Card Churning Ever A Good Idea?
Almost everyone uses credit cards these days. Those smug folks who claim that they have stayed out of financial trouble ever since they cut up their credit cards years ago are also missing out on Netflix subscriptions, airline tickets, Uber Eats, and all kinds of other fun stuff that it is virtually impossible to pay for with cash or Bitcoins. The difference between wealthy people and the rest of us broke chumps, however, is that wealthy people can afford to buy what they want and need even without their credit cards; they only use the plastic when there is a specific reason to prefer it over other forms of payment, such as if it is the only form of payment accepted by a certain vendor or if using the card gives them reward points. With reward points, as with so much else in life, the deck is stacked against the 99 percent, but this does not stop some people from trying to game the system through credit card churning. Credit card churning never improved anyone’s financial system in the long term, however, and once you figure this out, a Miami debt lawyer can help you pick up the pieces.
How Opening a Credit Card Account Affects Your Credit Score
When you open a new credit card, the credit card company must run a credit check to find out whether you qualify for a certain offer and to determine your credit limit and interest rate. These credit checks temporarily lower your credit score, but only by a few points. If you get approved, your total amount of available credit increases by the amount of the credit limit on the card. If you keep up with payments on the new card, it is all good news for your credit score.
How Closing a Credit Card Account Affects Your Credit Score
Closing a credit card account after paying off the balance or in order to avoid the temptation to charge more purchases on the card can feel liberating, but it is not a decision you should make lightly. Once you close the account, the total amount of available credit decreases. This lowers your credit score. It may be a good idea to make a clean break with a credit card that brought you nothing but trouble, but closing the account might mean you have to wait a while before applying for a car loan or other major decision that requires a strong credit score.
Credit Churning Does More Harm Than Good
Credit card churning is when you open a credit card to get the initial bonus and then quickly close the account, and soon afterward you do the same with another credit card. The free money you are getting from the bonuses is at the detriment of your credit score. The credit checks harm your credit score, as does the frequent closing of accounts.
Long-Term Strategy Will Get You Out of Debt
You need a long-term plan to get out of credit card debt, and a debt lawyer can help you form one. Contact Nowack & Olson, PLLC in Miami, Florida to discuss your case.