Why do we use a credit card? basically, it is a type of card provided by a bank that can be used to purchase your essentials whenever you want and pay for them at the end of the month. Additionally, it is the money that you borrow from the bank with the promise to pay it back. Credit cards come with a limited amount; the amount differs from bank to bank. Every bank provides its own offer on its card. There are two types of cards secured cards and unsecured card
Secured Credit Card: It requires you to pay in advance some amount as a security deposit, in the case in the future you’re not able to pay your used amount, that deposit money can be used as a charge.
Unsecured Card: It does not require any advance deposit for using the card, it even offers you better terms and conditions.
How Does A Credit Card Help?
So as we now know the use of credit cards and what their uses are. Sometimes our personal finance experts stop us from using credit cards for a valid reason. Many of you use your credit in the wrong way which puts you in a lot of debt. But if you use your credit card in a proper manner you may get better benefits compared to debit cards even saving your money. So now let me tell you what are some benefits of credit cards,
Bonus: While you want a credit card you need to have a good credit score or credit points and get approved for the credit card that at least offers the bonus of $150 or some more in charge of spending some amount from $500 to some several thousand of dollars when you are a new member but just for few months. Some cards give you rewards or some miles points that you can redeem in some given limited time.
Cashbacks: The cashback idea was started in the United States. Their idea was simple; use the card as you wish or the more you use you will get your 1% amount as a discount in the form of cashback. And today this concept is very well known by everyone. Some cards now offer you 2% or 4% or a maximum of 6% on some selected purchases but some cards’ spending capacity is limited. Nowadays you can even find some cashback cards with high rewards rates but these cards cost you a minimal fee.
Safety: The most important thing while using these cards is safety . so using credit cards saves you from fraud. If your credit card gets stolen, even if the thief uses your card fraudulently, you won’t lose any money that you haven’t used. You just need to notify your bank about the incident so they can take care of the situation
What Is Credit Card Churning?
Basically, credit card churning means opening multiple credit card accounts in order to receive more bonus points, cashback, etc. however this comes with lots of risks, and using multiple cards damages your credit scores. Using your Credit cards cautiously is important because if you don’t it could affect your credit card score and maintain your financial wellness. Credit card issuers often encourage issuers to apply for credit cards by offering a welcome bonus. For example, get $200 cashback when you spend $700 in the first 90 days of opening.
Why Do People Do Credit Card Churning?
Nowadays credit card churning has become a hobby for most of them. It’s like a game to them, which they play very smartly. Some people use it very well like they know how to get better rewards, cashback, free hotel stays, etc. by the way it takes very good planning and skills to use several cards in such a way that you can earn these benefits. Suppose you are approved for a credit card with some bonus for signing up, you have to meet some requirements that could be as some minimum spending in order to get the bonus.
How Does The Bank React To Credit Card Churning?
Banks are not so fans of the hobby of credit card churning. When a credit card holder uses multiple cards to save their money while getting bonuses and rewards then the bank needs to allow them to use those rewards by bearing bank loss. Some banks don’t allow the issuer to handle more than 5 cards and even if you do so you can face many circumstances. So remember when the issuer does the credit card churning bank notices all your transactions so if you’re caught red-handed your account may get deactivated and the bank will take back all your rewards.
Risk Of Credit Card Churning
Damages Your Credit Score: When you apply for a credit card again and again you drop your credit score. When you buy your new credit card and close your last one there is your credit card history stored in your bank which can affect your credit score.
Overspending: Sometimes to get your bonus you spend a lot more than your minimum spending requirement. If you are planning to make some big purchases such as furniture or some accessories then it’s a good time to use your credit card with a high welcome bonus.
Pay More Annual Fees: When you hold more cards to do your credit card churning then you need to pay annual fees for each card so it doesn’t make any sense in getting rewards and bonuses. Because you do earn much rather you spend more.