I recently caught wind of a post on the Churning Canada Reddit forum in which the user was facing the risk of job loss as a result of “churning” credit cards (a term which refers to the practice of opening and closing credit cards for the specific purpose of earning rewards points).
Here’s the post in full:
Opening and Closing Credit Cards: An Unforeseen Risk
When I read this post, I realized that in aggressively applying for, cancelling, and reapplying for credit cards in pursuit of Miles & Points, there was indeed a very real risk to certain individuals that I had never considered before.
After all, Miles & Points are very quick to ask, “Doesn’t this ruin your credit?!” And while it’s true that a little knowledge about how your credit score works will assuage those fears – after all, simply by paying your bills on time and maintaining a low utilization ratio, you can easily keep your credit score in the high 700s to low 800s – it’s fair to say that I had never really considered the other purpose that a person’s credit score might be used for: as a judge of character.
Indeed, there’s a reason why credit scores are viewed as sacrosanct in North American society: not only do they govern your creditworthiness whenever you’re seeking any form of lending, but they’re also used by employers, landlords, and many other important gatekeepers in life as an easy proxy to assess a person’s character.
If a person has excellent credit, the thinking goes, then this person would be more likely to reliable in their line of work, in keeping promises, and in holding themselves to a high standard of moral behaviour. On the other hand, if someone routinely fails to meet their financial obligations, an employer or landlord might tread more carefully in putting their trust in this person.
I’ve touched upon the idea of “credit-seeking behaviour” before, but mostly in the context of keeping your credit health in tip-top shape as you seek to get approved for more and more cards.
But credit-seeking behaviour is very much a concern among those using your credit file to assess your character as well, because a history of applying for new credit all the time – if not for the purpose of racking up the points – could well be an indicator of financial indiscipline.
Why Might Employers Care?
I’d say that the majority of people are at no risk of getting in trouble with their employers over having too many inquiries and new accounts on their credit report.
I myself used to work in a standard office job at one of the Big 5 banks, and while a credit check was required as part of the overall pre-employment background check, I never had a problem despite having over a dozen new credit cards opened within the past year by that point – most likely because I was demonstrating that I was using all of those products responsibly, paying off the balance in full and on time every month.
However, if you work in a sensitive field (such as any public or private position with access to highly classified projects), then there’s a good chance that your employer takes the background check much more seriously.
When it comes to looking at your credit report, there would be two separate considerations on the employer’s part: your financial state and your character.
As I mentioned, indicators of financial trouble or indiscipline – such as significant amounts of debt or a poor history of paying your bills – would be a red flag. If someone who’s in dire financial straits is working routinely with sensitive stuff, then that person could easily be tempted by a generous financial offer to pass along that top-secret material into the wrong hands.
At the same time, these sensitive positions would likely also look for any potential indicators of a problematic moral character, because they want to be certain that their employees would always do the right thing instead of seeking personal gain at the expense of the organization. And this is where cycling through tons of credit cards in a short period of time could potentially land you in hot water.
Even if you’re able to demonstrate that, despite the constant credit applications, your financials are indeed in perfect shape and you’re able to pay off all your cards on time, the question remains of whether the practice using the airlines’ and credit card companies’ marketing budgets to fund your travels around the world is properly aligned with the ethical standard that an employer in a sensitive field might expect.
I’ve touched upon the ethics of Miles & Points before, with the ultimate conclusion that this is a pursuit in which everyone must draw their own ethical lines. And while you may have no ethical qualms in taking advantage of large corporations who are in the very same business of taking advantage of their customers, there’s no guarantee that your employer might see things the same way.
Remember, while we’re all very enthusiastic about using credit cards to build up our points balances here at Prince of Travel, the world at large continues to find this behaviour a little confusing at best and downright exploitative at worst.
Of course, I personally don’t see a problem in strategically using all the credit card offers available in the market to maximize your own benefit, and I do wish that everyone else out there would open their eyes to that more easily – but alas, that’s the reality of it.
What Should You Do If You Work in Sensitive Fields?
Like I said, you’re only likely going to need to care about what you’re employer thinks about Miles & Points if you’re working in a sensitive field where you’re subject to routine background checks.
If you find yourself in this position, what can you do to avoid putting your job in jeopardy while continuing to rack up healthy points balances?
First of all, I don’t think that this singular anecdote means that anyone working in sensitive positions will have something similar happening to them. The pursuit of Miles & Points strikes me as something that most reasonable people would be able to understand after a bit of simply explanation – it’s akin to coupon-clipping or bargain-hunting in many regards, except scaled up by quite a few orders of magnitude.
If you do want to take steps to minimize the risk, though, you’ll want to do your best to minimize the amount of credit inquiries and new accounts being created on your credit file. There are plenty of people out there playing the game to high levels despite having this constraint in place – for example, those who are taking the credit hits a little easier in advance of getting their mortgage renewed.
Product switching will be a key strategy here: many issuers, like RBC and TD, allow you to claim the signup bonus not only when opening a new credit card, but also while switching from one credit card to another. This allows you to avoid an additional inquiry and tradeline added to your credit report while still cycling through the signup bonuses efficiently.
Meanwhile, issuers like American Express don’t allow you to effectively leverage product switches. The usual strategy is therefore to constantly apply for new cards, but if that’s off the table, then you’ll want to think more carefully about earning points on the basis of your regular spending.
For example, if you got yourself an American Express Cobalt Card and an American Express Gold Rewards Card, you’ll be able to combine the former’s 5x earnings on groceries and dining with the latter’s 2x earnings on gas, drugstores, and travel to create a pretty solid points-earning portfolio based on your regular spending patterns. Another strategy might be to combine the Cobalt with the Business Platinum to get a flat 1.25x on all your non-bonuses purchases.
Throw in a Visa or MasterCard into the mix for when the retailer doesn’t take Amex, and you’ll have an effective methodology of harnessing rewards points while limiting yourself to only a handful of credit cards, which is unlikely to raise flags on your credit profile no matter how closely anyone is looking.
Finally, if anyone does happen to find themselves in a similar position to the user who posted on the Reddit forum, my advice is to make a serious effort in demonstrating to your employer that Miles & Points is in fact a very prudent, rewarding, and widely-known undertaking for anyone who likes to travel.
Of course, you should have no trouble proving that your finances are in great shape. But when it comes to addressing the moral side of the concern, it’s in your best interest to demonstrate that your behaviour isn’t some sneaky scheme that you’ve devised on your own, but rather a proven formula that’s been adopted by millions of people in Canada, the US, and around the world to take their travel to the next level.
By speaking to the legitimacy of the industry, you’re more likely to convince your employer that there’s indeed a reasonable explanation for the dozens of inquiries and new accounts on your credit file.
I’ve always maintained that pursuing Miles & Points does not adversely affect your credit score, as long as you take some time to understand how your credit score works. But up until now, the fact that an employer might take a dim view of a person relentlessly opening and closing credit cards hasn’t really been something I’ve thought about, let alone addressed here on the blog, and I think it’s necessary to highlight that this is indeed a risk that may arise – and that you may consider taking precautions – if you work in a sensitive position that has strict clearance requirements.