Upper Class People Make This Credit Card Move More Often Than The Average American

Opening up new credit cards dings your credit and is often looked down upon by the financial community. This happens because when you apply for a new card, the lender performs a hard inquiry to check your score and other determining factors like credit history and age. However, according to a survey from The Motley Fool, rich Americans with net worths over $1 million open new credit cards at a higher frequency than the average person, which goes against conventional wisdom.

According to the survey, 26% of rich Americans open new credit cards twice per year compared to 14% of individuals with net worths under $1 million. Additionally, 10% open credit cards three times per year compared to 3% of average Americans. A possible driver behind the higher opening rates is that rich Americans are more likely to use their cards as they seek to maximize their rewards in a process called credit card churning.

While it may sound complex and arduous, credit card churning is quite simple but can be hard to manage if you're not the best with finances. Credit card churning is the process of repeatedly opening new credit cards to take advantage of sign-up bonuses, which can be lucrative. For example, the Amex Platinum, a card with one of the most expensive annual credit cards fees, has a sign-up offer where individuals can earn 70,000 Membership Rewards points. The points can be good for traveling or can be redeemed for $700 of statement credits. Other bonuses can include free hotel stays or even a 0% interest introductory phase. With such lucrative rewards, high-net-worth individuals often open luxury credit cards just to meet the bonus requirements and essentially earn free money or other perks.

While credit card churning may sound lucrative, it is a risky strategy. To begin with, it can lower your credit score, which can lead to paying more for loans if you plan on financing a large purchase in the future. Additionally, by managing multiple credit cards and having to remember more due dates, it could lead to excessive late fees and interest charges if not managed properly. Many people also advise against churning, especially for individuals with bad credit card habits, like maxing out credit, because having multiple open cards could tempt them into overspending and falling further into debt.