Points taken: The truth about earning credit card rewards

Earlier this year I holidayed in Japan, arriving home, happy but broke, to the exciting news that one of my kids will be getting married in late 2024 - in Dubai. That leaves me needing to fund a return flight using as little cash as possible.

Short of selling a kidney (both of them being decidedly worse for wear courtesy of Tokyo's excellent restaurants), I checked out the possibilities of scoring free flights by signing up to rewards credit cards offering bonus frequent flyer points.

The strategy sounds simple. Sign up for a card, score the points, ditch the card, take out a new card, repeat. Gaming the system this way is known in the banking industry as card churning or hopping. It's not illegal. But does it really stack up? Here's what I discovered.

For context, a Qantas economy return airfare from Sydney to Dubai costs around $2000. To make the trip using Qantas Frequent Flyer points I'd need about 172,000 points for each leg, or roughly 344,000 points in total.

There is no shortage of cards offering bonus points as a sign-up deal. But banks rarely give away anything for free, and cards offering supersized points typically come with a hefty annual fee.

As our table shows, the Qantas Premier Titanium is hard to beat for upfront points (150,000). The catch is that to be eligible you need to earn at least $200,000 annually. Let's just say that counts me out.

As an ABN holder, I could apply for the Amex Qantas Business Rewards Card and pocket 170,000 points. To be eligible, I'd need to join Qantas Business Rewards, which has a one-off joining fee of $89.50. Add this to the $450 card fee and the cost jumps to $539.50 - more than a quarter of the cost of the flights I'm looking at.

Moving on, the ANZ Frequent Flyer Black card offers 130,000 bonus points. However, the points are doled out in two lots. The first 100,000 becomes available if you spend $5000 on the card in the first three months. The remaining 30,000 points only accrue after you've held the card for more than 12 months, which means paying a second annual fee.

That's not uncommon. "It seems like some institutions have learned and adapted [to card churning] by only offering points after the one-year anniversary of holding the card," says Compare the Market's Chris Ford.

Credit score at risk

By this stage, it had become clear that I'd need to apply for several cards to amass enough points for a free return flight to Dubai, and in all likelihood end up paying more in annual card fees - and on purchases - than the cost of the airfare itself.

It's not just about the costs. Churning through credit cards has the potential to damage your credit score.

Charlotte Rankin, director of client advisory at credit agency Experian, says opening just one new credit card isn't necessarily bad for your credit score. The danger can lie in applying for multiple cards. When you apply for a card, the issuer may ask to see your credit record - known as a 'hard' inquiry.

"Multiple inquiries in rapid succession can indicate financial difficulty, which could make that person a greater lending risk, reflected by a lower credit score," explains Rankin. She adds that hard inquiries stay on your credit report for five years.

Churning through cards also reduces the average age of your credit accounts. This can further impact your credit score because, as Rankin notes, "in general, a higher average age of accounts is best".

The need to spend what can be significant sums on a card to cement upfront points brings its own pitfalls. Rankin says that if a cardholder starts to fall behind with repayments, the issuer may report the late payments to the credit agencies, which could "significantly hurt your credit score".

Try a simpler option

Chris Ford says an alternative may be to look at out-of-the-box ways to build frequent flyer points. "We know some energy retailers offer frequent flyer points with some plans," he says.

"You can convert your grocery shopping reward points for frequent flyer points. Qantas even has a wellbeing app that will reward you with points for staying on top of your health."

Or, you could get really creative. Martin, who prefers to share only his first name, has had a few goes at using sign-up points to build his frequent flyer tally. Along with the issue of high fees, he has been stung by the inevitable fine print.

"I made a large holiday purchase on a card to secure sign-up points, but it turned out the transaction wasn't eligible for points based on how I had paid for it [via BPAY], something I only discovered later when I went back through the terms and conditions," says Martin. "It meant I had paid fees for no points."

Undeterred, Martin has developed another strategy to maximise points. This involves letting family members put large purchases through his credit card. Sure, it's not for everyone, but it works for Martin, and it helped him earn 200,000 points last year, enough for a free business class return flight to Singapore.

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