Credit Cards

What Are the Risks of Credit Card Churning?

Get the Best Credit Cards in Singapore

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From S$100's of dollars to 1,000s of air miles, credit card sign-on promotions can be remarkably attractive. In fact, many might be tempted to open new cards just to take advantage of these offers, only to close them perhaps a year or so later. This phenomenon, called credit card churning, comes with quite a few risks however. In fact, if improperly managed, churning can result in significant debt, a decreased credit score and much more. We've explored these negative consequences in depth below to help you fully understand the potential impact of churning.

Table of Contents:

Opening & Closing Accounts Can Damage Your Credit Score

Perhaps the biggest question Singaporeans tend to have about churning is whether or not it will negatively impact their credit score. The answer is yes–and for a few reasons. First of all, applying for a credit card triggers an enquiry into your credit score. Applying for too many credit cards in a short order can be interpreted as potential rejections by banks running future checks. Even more, having several credit lines open at the same time is often considered suspicious by the credit bureau, which may lead to a decrease in your score.

Churning can also damage your credit score when you close accounts. Closing a card account with a large credit limit decreases your total available credit, which can affect your debt-to-credit ratio. Additionally, closing a card cancels out any positive boost you've accrued from your activity on that card over time.

A low credit score can impact your ability to secure a loan

Finally, damage to your credit score can have real consequences. Such decreases can negatively impact your ability to secure a competitive bank loan to buy a home or quick cash in the case of a personal emergency. Ultimately, credit card churning's potentially negative impact on your credit score may not be worth the welcome bonus you're chasing.

Balancing Multiple Accounts Can Lead to Accumulated Fees

You may be wondering if you can avoid the negative repercussions of closing credit cards by just keeping your accounts open. While this is plausible if you're limiting yourself to about 3 cards total, any number beyond this increases your risk of financial mismanagement. After all, most credit cards come with annual fees. While this fee may be waived for the first 1-2 years, you'll be charged in full as soon as that time runs out–even if you've long forgotten your card after maxing out its promo. If the card offers a spend-based waiver, you'll need to watch how you split your purchases closely to ensure you'll qualify.

This can be challenging based on your budget level as well as your spending habits. For example, you'd need to spend S$25k/year with a DBS Altitude Visa Card to avoid its fee (averaging about S$2,083/month). You'd also need to spend S$10k/year on your OCBC 365 Card to earn its associated fee waiver (about S$833/month). Combined, you'd need to spend about S$2,917/month which is quite high for the average consumer. Even more, you'd have to concentrate your spend on DBS Altitude. If you're a local everyday spender, this means losing out on the higher rewards rates offered by OCBC 365 Card.

Credit CardAnnual Spend-Based WaiverAvg Spend/Mo to Earn Waiver
DBS Altitude (Travel Miles Card)S$25,000/yrS$2,083/mo
OCBC 365 (Everyday Cashback Card)S$10,000/yrS$833/mo
Total Spend AmountS$35,000/yrS$2,197/mo

It is worth mentioning that if your account is in good standing, you may be able to call in and request an extended fee waiver. However, this is not guaranteed, and banks typically only offer an extra waiver to consumers who are consistently spending on their card. If you're a churner, this may not be the case. In fact, you may not even remember which cards you should use to spend on what, or how often, leading to overall mismanagement of your personal finances.

Overextending Can Lead to Debt that Outweighs Bonus Value

Credit card promotions are rarely "no strings attached." Typically, new cardholders must hit a minimum spend amount within a set timeframe in order to qualify for the advertised bonus. Quite often, the bigger the bonus the harder it is to access. If you're not careful, you may sign up for a card with an attractive welcome offer that's just beyond your grasp.

If this happens, you have one of two options. You can either move forward and try to use the card in a way that best fits your typical spending habits, understanding that you must forgo the bonus you'd hoped for, or you might try to push your spending and overextend yourself in order to hit the minimum requirements. This latter option can be incredibly risky, and is rarely worthwhile. After all, you'll ultimately need to pay off any debt you accrue along the way–plus often-aggressive interest (typically 26.80% p.a.). The longer it takes to pay off your debt, the more interest will compound and the more difficult it will become to escape the fees. All in all, it's unlikely that the initial promotion's value will outweigh the cost of resulting debt.

Banks Are Now Making it Harder & Harder to Churn

Finally, lucrative churning is no longer so easy. Many banks now limit their most attractive promotions to "new customers," or those who haven't owned or applied for a card with the bank in the past 6-12+ months. "Existing customers" who already have a card with the bank usually only have access to far less impressive sign-ons, typically worth S$30 or less. Finally, banks also now require new cardholders to keep their card for a set amount of time in order to keep their promotional bonus. Those who scrap their card before 12 months, for example, may have their initial welcome offer "clawed back" or rescinded.

Common Promotions
New Customer
  • Receive 10k bonus miles w/ S$6k spend in 3 months
  • Free Apple AirPods & Wireless Charging Case w/ S$1.2k spend in 2 months
  • Receive S$200 cash via PayNow
Existing Customer
  • S$50 Grab vouchers
  • S$30 CapitaVoucher w/ S$1k spend in 1st month
  • S$20 cash via PayNow w/ online application
These examples are representative of common and recurring promotions across several cards and banks. Overall, promotions vary with time

Conclusion

Ultimately, the risks of credit card churning likely outweigh the potential benefits. It's not worth damaging your credit score, accumulating fees or accruing debt over. However, this does not mean consumers are better off with just one credit card. In fact, most Singaporeans can benefit from carefully selecting 2-3 cards that complement each other and also reward their lifestyle. For example, an "everyday" card with high cashback rates on local essentials may pair well with a travel card with boosted miles for overseas purchases. There are plenty of options that have no annual fee or extended fee waivers, which reduces the cost of owning more than one card. No matter what, when deciding which card to apply for, always read through the details (like minimum requirements, category rates and earnings caps) to ensure that it's truly a great fit for you.

Carrie Arndt

Carrie is a Senior Analyst at ValueChampion, specialising in credit cards in Singapore. She previously led consumer studies worldwide as a Senior Research Executive at MMR Research.

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