What is credit card hacking and what are the risks?

Now that the borders are open, there’s a tempting financial tactic that seems too good to be true: credit card hacking.

As an influencer describeit allows you “to cheat the credit card system to travel anywhere for free, for the rest of your life”.

He is popular on Reddit and TikTok and promises lots of great rewards.

But like any financial strategy, it also involves risks. Here’s what you need to know.

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What is Credit Card Hacking?

Although the practice has been around for some time, credit card “hacking” or credit card “churning”, as it is known in the United States, has seen a surge of interest online.

As Angel Zhong, senior lecturer in finance at RMIT, explains, credit card hackers “will open many credit cards to take advantage of bonus points and welcome offers.”

“But once they get those welcome offers [or before being hit with an annual fee] they cancel the card and repeat this process over and over.”

What are the rewards?

Many cards offer cashback programs, but using travel cards to earn travel points is one of the most popular methods of card hacking, especially when some cards include welcome bonuses like 120,000 airline rewards points.

A credit card hacker claimed fly business class from Brisbane to New York for $150, while others like the free access to airline lounges many cards offer. Some even include free travel insurance for the passionate globetrotter.

What are the risks ?

Damage your credit score

When applying for a loan such as a home loan, lenders will look at your credit score.

It is made up of the amount of money you have borrowed, the number of credit applications you have made, and whether you are paying on time. Having a large number of credit applications (hence applying for a lot of credit cards) in a short period of time, or not paying them back on time, can hurt your credit score.

According to Dr. Zhong, even a single credit application can lower your credit score in the short term.

“So if you’re thinking of buying a house and getting a mortgage in the next six months, I strongly advise against engaging in credit card churning.”

Financial advisor and mortgage broker John Cachia agrees the practice could be frowned upon by lenders; although it is not illegal, it involves “manipulating the system”.

But he says just having a few credit cards isn’t the same as using them, even if your goal is to earn travel points.

If you have credit cards, he recommends reviewing them “at least twice a year” to make sure you’re getting the best benefits.

“But if you have 10, or 12, or 15 [cards]? It’s a totally different style of behavior,” he says.

“A lender may assume you’re using credit cards to pay off old credit cards.”

He also points out that lenders will look at the total limits available to you, not your outstanding balance. So if you have two credit cards with a limit of $25,000 each, that $50,000 is what will be included in your maximum credit limit, and that could mean you can’t borrow that much on a home loan, for example.

Overspending

To earn those juicy frequent flyer points, the cards will usually require you to meet a minimum spend – something like $2,000 or $3,000 in the first few months.

In general, Dr. Zhong warns that you might end up spending more than you normally would just to achieve these bonuses.

This is also why it’s a good idea to start slow and avoid taking out a bunch of cards at once – even just opening two cards at once can mean you’ll have to spend $6,000 on a few months to get anything.

Get into debt

Like any financial product, Cachia says it’s very important to understand the terms and conditions of a credit card before signing up.

It’s also essential that you keep track of your card — when are refunds due? What about annual fees? Are you on track to meet your minimum spend?

“We all know that credit cards, if you don’t pay it back on time, can be quite expensive,” says Dr. Zhong.

So is it worth it?

For Dr. Zhong, hacking credit cards is “definitely” worth the effort for some people, given the rewards offered.

She says credit card hacking can be worth it “if you have the time, the organizational skills, and can control your credit card usage carefully.”

However, if these three things don’t apply to you, or if you’re planning on applying for a home loan in the near future, she advises against it.

This article contains general information only. You should consider obtaining independent professional advice based on your particular circumstances.

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