|by Sean O'Neill||Foreign Currency and Exchange, Frequent Flier Miles||20|
This year, a record number of travelers have opened multiple credit card accounts to earn thousands of "free" frequent flier miles as part of sign-up bonuses. Some of them went on to close the same accounts soon afterward to avoid annual fees.
This increasingly common practice is called "churning" (or "shotgunning"). Airline analyst Jared Blank this week blogged about how he and his wife earned about 500,000 miles from credit card bonuses this year alone by churning rewards cards.
There's a risk to churning reward cards, though. It can hurt your credit score.
The always-thorough reporter Scott McCartney writes in this week's Wall Street Journal:
"When card companies request your information from credit bureaus, your score may drop a few points. And when you open an account, your credit score can take a hit because research has shown that people who open new accounts tend to be riskier, said Barry Paperno, consumer-affairs manager at Fair Isaac Corp., which created the FICO score, a key credit measure used by lenders."
A strong credit score can mean lower rates on loans. Customer with a credit score of 740 or so (on a scale where 850 is the highest) would get approved for a credit card, but might not qualify for the lowest interest rate. Banks may assume that if you have too many credit cards you'll go too deep into debt and won't be able to repay your debts.
McCartney reports that "opening new card accounts over several months won't have much impact, but opening and closing 10 accounts at once could push a strong credit score (760 and above) to average or below."
If the risks don't scare you off, you can master techniques for applying for credit cards to max-out the possible mileage bonuses by using fee-based service Travelhacking.org or the free blog A View From the Wing.
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