Forget about walking the dog or mowing the lawn. Matthew Palm's side hustle is signing up for credit cards.
Every few months, Mr. Palm, a 57-year-old freelance television producer who lives in Illinois, goes online and applies for a new credit card.
He only opens cards that come with a sign-up bonus: a reward of a few hundred dollars in points for new customers who meet a modest spending goal.
“The biggest point of anxiety is when you hit the submit button on your latest card application,” he said. “And then once it's approved, that's when the adrenaline rush comes.”
Any sign-up bonus is small. In order to earn a decent income, Mr. Palm continues to apply. He estimates that he and his wife have opened more than 50 cards in the seven years he's been doing this side business.
The advertising bonuses have brought in more than $40,000 for his family, he said.
Mr. Palm is a member of the so-called churning community – people who regularly open credit cards in order to collect lucrative advertising bonuses. The churn logic is simple: hundreds of credit cards come with sign-up bonuses. So why not apply for as many cards as possible?
Mr Palm does not consider himself an extreme migrant. While he has opened more than 50 cards in seven years, he knows others who open 20 cards each year. Some people have been there for decades.
Isaac Khor, a graduate student at Northeastern University, has been opening credit cards since the pandemic began. “I’m up 15,000 this year,” he said. “The doctoral scholarships are not that high, so this increases my income significantly.”
Churners come from all walks of life. Some are young adults, some are housewives, and some are wealthy professionals. But most have a few things in common.
“It’s a hobby for people who like reading the fine print,” Mr. Khor said. A typical churn loves squeezing every last dollar out of every deal, even if it requires several hours of spreadsheet work each week.
Lindsay Ash started opening credit cards for herself and her husband 15 years ago. The couple, who live in California, have around 60 active cards.
“The amount of money you can make is ridiculous,” she said. “I still have moments where I pinch myself.” In addition to the cash — five figures a year, she said — her exodus funds annual vacations to Japan, Florida and Hawaii.
One wrong step can ruin your credit score
Churning isn't for everyone. This hobby requires cash upfront, as unlocking a sign-up bonus typically requires customers to reach a certain spending limit. One wrong move can ruin your credit score and lead to high interest rates.
“If you are even remotely insecure about your finances and juggling bills, stay away,” Mr Palm said.
But emigrants often have surprisingly high credit scores. While opening a new line of credit can lower a customer's score, low credit utilization – spending only a small fraction of available credit – can increase it. Since migrants often have access to huge amounts of credit through their card collections, many are happy about superprime scores.
Card issuers know that thousands of people benefit from their promotional offers. But it is a difficult problem to solve.
“The problem is adverse selection,” said Roger Hochschild, a former chief executive of Discover Financial Services, a popular card issuer that Capital One later acquired.
Credit card companies make most of their money in two ways. When customers don't pay off their balances, issuers often charge extremely high interest rates. And every time customers use their card to make a purchase, issuers receive a small fee. Therefore, credit card companies want to encourage as many customers as possible to swipe their card.
“To get them to get a new credit card, you have to get their attention,” Mr. Hochschild said. Hence the decade-long cycle of promotional offers, with issuers introducing new cashback categories and one-time bonuses every year.
Internally, financial analysts at credit card companies often assume that most customers will sign up for a card and then use it for most of their purchases, Hochschild said. In this way, issuers lose money on the special offers, but make it up over time through swipe fees and interest payments.
However, this assumption can backfire, especially if the offers are too attractive. Then there can be a rush of people trying to game the system. “Any person who does just the letter of the promotion and nothing more is losing money,” Mr. Hochschild said.
Issuers are taking measures to avoid this. Chase recently cracked down on customers who tried to sign up for the same credit card multiple times. American Express has done the same. But issuers can't discriminate in publicly advertised offerings, otherwise “you're going to have problems with regulators,” Hochschild said.
Exploit loopholes
It is difficult to determine the exact size of the ever-changing community. A Reddit page about the practice receives tens of thousands of visitors weekly, and popular websites and podcasts on the topic receive thousands of views each month.
Far more people take part on the side and occasionally take advantage of attractive promotional offers. A 2023 study published by the Federal Reserve Board estimates that experienced credit card users receive $15 billion annually, at the expense of those who carry balances and don't use rewards.
Max Gunara, a 30-year-old business owner, estimates that credit card companies and airlines lose $30,000 to $50,000 annually because of his perks and bonuses. While he pays $15,000 in annual fees for his personal and corporate cards, he earns about 3.3 points per dollar spent. Because he owns several businesses, his expenses are in the low seven figures.
“I have 41 credit cards and I want to say I have 19 million points right now,” Mr. Gunara said. He found that for every person who tried to maximize their rewards, there were “ten to a hundred” others who weren't taking advantage of the benefits of their high-fee cards.
“For me it’s a huge transfer of wealth,” he said.
Some cards also offer a zero percent interest rate for the first 12 months as a sign-up bonus. Mr. Gunara used such a card to borrow $76,000 interest-free before paying off the balance shortly before it was due.
“In today’s interest rate environment, this is the cheapest form of business loan you can get,” he said.
Some go even further. Cardholders receive cash back when they accumulate large balances. Therefore, they often look for artificial expenses or loopholes that allow users to spend without actually spending money.
“It used to be possible to order dollar coins from the mint and pay for them with a card” to get a sign-up bonus, said Ms. Ash, the California-based diver. Other techniques include purchasing gift cards, overpaying taxes, and purchasing gold bars at Costco to earn cash back and meet promotional thresholds.
Some people also take part in so-called shopping groups. Stores often tell customers that they can only purchase a limited number of in-demand products, such as newly released iPhones or electronics on sale. However, some companies want to purchase products in bulk. To get around the restrictions, companies work with a buying group in which hundreds or thousands of individuals purchase the product individually and then resell it to the bulk buyer. This way, the buyer gets all the products they want and the group members reap credit card rewards.
Churners say it's getting harder and harder to find such tricks. Whenever a method of making money becomes too popular, companies close the gap or go bankrupt. For this reason, many people keep their techniques secret so that they can stay profitable for longer.
“For every gap that closes, a new one opens,” Mr. Gunara said.