Apparently credit cycling may be risky, and I just wasn’t aware of it? I thought it would be interesting unpack this a bit…
In this post:
Spending more on your credit card with credit cycling
To start, let’s talk about what credit cycling is. When you apply for a credit card, you’re typically given a credit limit, which is the maximum amount you can spend on a card until you pay down the balance. There are many factors that go into determining that credit limit, ranging from your income, to your history with the bank, to how much total available credit you have.
Credit cycling is essentially the practice of spending more on your card in a billing period than the credit limit, by first paying down your balance. For example, say you have a credit card with a $5,000 credit limit. You then make a $5,000 purchase, pay off the $5,000 purchase, and then make another $5,000 purchase in that same billing period.
The fact that you spent $10,000 on your card that month despite having a $5,000 credit limit would be credit cycling. Even though you never exceeded the credit limit, you spent more than your total available credit in a cycle.
Note that credit cycling is different from the practice of just generally paying your credit card off early (or multiple times), which is something I always do, in order to limit my overall credit utilization, and keep my credit score high.
Is credit cycling risky and frowned down upon?
Travel on Point(s) writes about credit cycling, and how banks don’t like it, and it’s risky. I had actually never really thought about that, so I did some more searching online, and found several similar stories. All the stories are along the lines of “banks frown down on it,” with little concrete details about it being prohibited.
That got me thinking, because this honestly came as a surprise to me. It’s not like there are actually any published rules from banks in this regard, and for that matter, if they don’t want you to spend more than your credit limit over the course of a billing cycle, they could just cut off your spending ability.
I figured I’d ask the OMAAT community if people have actually had issues with this? Is credit cycling actually the issue, or is the issue overall suspicious purchase patterns, and people then blaming it on credit cycling?
For example, let’s say that you state in your credit card application that you have income of $50,000, and you’re given a credit limit of $5,000. Then say that you’re spending $20,000 per month with credit cycling. I can totally understand how that might raise some red flags, and could cause a financial review from a credit card issuer.
However, is credit cycling an issue if your spending patterns aren’t otherwise suspicious? For example, I pay my taxes by credit card, and sometimes that involves maxing out the limit on a credit card two or three times in a billing cycle, and immediately paying it down. I use the same card rather than multiple cards in order to use the product with the best rewards structure.
I’ve never had an issue — knock on wood — and neither has anyone else in my family. Like I said, I actually didn’t even realize this was something that was potentially frowned down upon. For that matter, I have a consistent record of making payments on-time, and I’m not “gaming” my credit card spending in any way. I pay everything by credit card that I can, of course, even if there’s a fee (assuming the math checks out), but that’s the extent of my “creative” spending.
So I’m curious if anyone has any data points to share. Is credit cycling frowned down upon only if the spending patterns are otherwise suspicious (and I think we all know what that largely entails), or has anyone had issues with credit cycling while spending reasonable amounts?
Bottom line
Credit cycling is a practice that many use in order to spend more than their credit limit on a card. The idea is that you can pay off your balance during your statement period, and then spend more again.
On the surface, you wouldn’t think this is an issue, since we typically view the credit limit as being the most credit you can be extended at any one point. Furthermore, if credit card issuers wanted you to spend no more than your credit limit during a billing period, they could just not reset your spending ability.
However, many report that there are big risks to that, so I’m curious what experiences others have had. I’ve done this frequently and have never had issues, though my spending patterns are also otherwise reasonable. So I wonder if this issue is for people spending suspicious amounts on their credits, and credit cycling is just what’s blamed?
What has your experience been with credit cycling, and what do you make of the risks?
Once or twice on my Citi Double Cash card I have maxed it out and then paid it off, but my available credit did not return to my credit limit until the end of my billing period. In effect forcing me to only spend my credit limit. This doesn't always happen, and has only happened a couple of times at the very beginning.
Could that bed the least relevant picture in any blog post here?
Some banks mind more than others .
Citi is a big no no (especially on certain cards)
Chase is an issue too
Amex is total fine
Etc
Why not just spend the money you have and then you don't need to worry about your credit and what the bank thinks of you, like the most of the world does? I get people lending money when they can't cover basic needs but that doesn't seem to be Ben's case.
What's the point of this comment? Does it make you feel better to judgy, ill-informed comments? This site is specifically about maximizing credit card rewards, if that doesn't appeal to you that's fine, you can shut up and move along, there is absolutely nothing of benefit to this site from your comment, and no one here is getting anything out of you being here, so take your miserable self elsewhere, it's really that simple. Is...
What's the point of this comment? Does it make you feel better to judgy, ill-informed comments? This site is specifically about maximizing credit card rewards, if that doesn't appeal to you that's fine, you can shut up and move along, there is absolutely nothing of benefit to this site from your comment, and no one here is getting anything out of you being here, so take your miserable self elsewhere, it's really that simple. Is there some reason you thought the world would benefit from hearing what you had to think?
When Chase issues a card to a cardholder with a young credit history and issues a $500 initial credit limit, they have to expect people to credit cycle. A $500 CL is an absolute joke. I understand they're testing out creditworthiness, but start with at least $1k. To me, they're asking for it in this example and it should be 100% fine with them. You're not going over the CL and still well below reported income.
@Ben--Is "frown down" an American expression? I've only heard "frown on it" before.
Never knew this could be an issue. I'm new to the US and have no credit rating despite having decent income so was stuck on a card with a $4.5k limit. Spent ~$30k a month on it. Didn't seem to have an issue.
I had no idea it was an issue/ potential issue, but I did it a lot earlier this year. I was doing a house renovation. I have two Citi cards from AA with limits around $25k but my renovation was a lot more, of course. I routinely charged items, paid them off, then charged more, during the 3 month renovation. Certainly more than the limit each month. Once the renovation was completed I reverted to...
I had no idea it was an issue/ potential issue, but I did it a lot earlier this year. I was doing a house renovation. I have two Citi cards from AA with limits around $25k but my renovation was a lot more, of course. I routinely charged items, paid them off, then charged more, during the 3 month renovation. Certainly more than the limit each month. Once the renovation was completed I reverted to my normal spending patterns. No issues, and the spend certainly elevated my AA status!
Well, twice i've had a capital one card with a high spend SUB like $30-$50k in 3 months.... with a $5k credit limit that they won't budge on. At that point either cycling is permitted or it's fraud (false advertising), no?
Would this not also affect your credit limit? You are temporarily maxed out before you pay it off and that depends on how fast you pay it off. I know with AMEX based on other people’s feedback that they charged 80 percent of their bills to AMEX for that billing cycle and paid it off when the statement came but AMEX reduced their credit limit by 80 percent. It took a while but they got...
Would this not also affect your credit limit? You are temporarily maxed out before you pay it off and that depends on how fast you pay it off. I know with AMEX based on other people’s feedback that they charged 80 percent of their bills to AMEX for that billing cycle and paid it off when the statement came but AMEX reduced their credit limit by 80 percent. It took a while but they got their previous credit limit back and even a higher than before credit limit. This was done by AMEX as they didn’t ask for an increased credit limit. It was probably because they did not charge as much on their AMEX card to avoid this issue again.
Doing this once in a while, with no other patterns of suspicious activity, isn't normally an issue. The issues come when you're doing it frequently and, as you mentioned, appear to be moving $$$ far above your means. It's one of the patterns that banks must legally monitor for potential money laundering.
I would take the view that if it's constant, it might be an issue. But if it is infrequent and tied up with a low limit on a new card and/or something "obvious" like paying taxes or some short-term offer and not obvious MS, it is less likely to be an issue.
Put differently, double-cycling in March where most of that is to the IRS and your state (and where you're only using a fraction...
I would take the view that if it's constant, it might be an issue. But if it is infrequent and tied up with a low limit on a new card and/or something "obvious" like paying taxes or some short-term offer and not obvious MS, it is less likely to be an issue.
Put differently, double-cycling in March where most of that is to the IRS and your state (and where you're only using a fraction of your total available credit, just using a single line a lot) is probably less of an issue than quadruple cycling with gift card purchases.
Banks frown on it when's its Manufacture spending. If you're buying thousands of dollars from big brand name companies they don't care I have done multiple times. Chase might throttle you by making payments take a full 3 biz days to clear even when from a chase checking account. Amex had no care and they welcomed and love prepaid before the charges were even performed.
I never had an issue like this although if I have a lot of expenses on a new card that I am going for a signup bonus on its not unusual for me to nearly max the card pay it off and charge a whole lot more in same cycle. I don't believe banks care about that if you only do it once in awhile. I have heard of people having issues when they repeatedly...
I never had an issue like this although if I have a lot of expenses on a new card that I am going for a signup bonus on its not unusual for me to nearly max the card pay it off and charge a whole lot more in same cycle. I don't believe banks care about that if you only do it once in awhile. I have heard of people having issues when they repeatedly engage in that behavior over a period of months. It could be a flag that they are engaged in some sort of manufactured spending and not legitimate spending. Also, it can be a sign that they may be in some sort of economic distress and basically moving money around month to month. In my experience if you have legitimate spend that brings you up near the credit limit and pay it down and its not something that happens every month or every other month the most likely outcome will be a credit line increase if your profile supports it.
I have done this frequently, to the tune of $50k+ over a few months, and it hasn’t been an issue, but I’m also well established with my bank so they know I’m good for it, I guess?
I'm very surprised you didn't know about this Ben, given your line of work... It's pretty well known in the card churning communities and yes, some banks will flag you and even shut you down for doing that to a certain extent (like Chase).
Wow, I had never come across this terminology before but I’ve certainly done it many times without realizing on my low-limit cards (including BILT lol).
Interesting.
I only credit cycle during tax season. I usually have a 100k+ tax bill and need to credit cycle a couple of times. But overall, never had an issue in all these years. I have done this with chase and capital one. My credit score is 830-845.
Does charging the taxes pencil out once you factor in the 1.82% fee (or whatever it is)? I’ve thought about doing this with C1 VX since you get 2x points, but the spread is low enough that it didn’t seem worthwhile
Using a 2x points card and valuing the points at 1.5 cents each (a pretty lowball valuation for someone who transfers to partners), you effectively get ~$3,000 worth of points for $1,820. Or you could just use a 2% cash back card and get ~$180 in free money.
I certainly did very recently encounter a problem with this practice on an AAA Comenity Visa card. (The AAA Comenity Visa card is a “free” credit card available to AAA members. It has great cash-back features including 5% on gasoline and vehicle charging and 3% on travel, grocery, and restaurant expenses.)
The only disadvantage is that the credit limits are fairly low, about 25% or less of what some of my other cards, including AMEX,...
I certainly did very recently encounter a problem with this practice on an AAA Comenity Visa card. (The AAA Comenity Visa card is a “free” credit card available to AAA members. It has great cash-back features including 5% on gasoline and vehicle charging and 3% on travel, grocery, and restaurant expenses.)
The only disadvantage is that the credit limits are fairly low, about 25% or less of what some of my other cards, including AMEX, provide. They don't query about income!
I encountered the problem when I needed to pay an upcoming cruise bill (which would give me 3% back) that was about 2.5x my credit limit on that card. I paid via that card in multiple installments, following each installment with a complete, out-of-cycle payment directly from my bank account to AAA Comenity to allegedly fully restore my credit limit. What I found was that although my account showed my full account credit limit being fully available, AAA Comenity started refusing all, including small (<$100) charges. It took two weeks of no attempted charges before my ability to use the card was restored. In speaking with an “alleged” service manager at AAA Comenity, they couldn't or wouldn't explain why they put such holds on an account with zero balance!
To make matters worse, they reported this to the credit bureaus and I saw my credit rating go down by over 35 points.
So so answer your question, at least some credit card providers not only frown on the practice, but actually take revenge on its use …
I often exceed the monthly limit in a sense when on extended holidays and want to use a Hilton card
To avoid this issue I first predict my spend and pre-pay enough so the amount owed never reaches the limit ever.
With a dumb limit of $10K and anticipation of spending $12K I will pre-pay $5K.
Never had a problem.
Most of my cards have $30K or more but my new AMEX thinks I'm a new customer.
I do this often when opening new cards for intial signup bonus, when credit limit is lower then bonus spend requirement. Don't want to wait for statement to close, to get bonus points.
Never had any issues with bank. Mostly Chase.
I ran into this on my first Ch Ink Pref since the CL was too low. I called up the customer service folks and was told as long as I didn't do what was stated in the article (use all the CL, pay it off, then run it up again), that I'd be ok. I ended up paying off the balance each week and my main concern was my credit score, not trying to get more CL out of the card than I had.
Can you please provide this "article" or better a link. TIA.
Huh? This article. You know, the one these comments are attached to.
I imagine one concern from banks is people gaming rewards cards by finding something to purchase that can reliably be turned back into cash to pay off the card. In Ye Olde Days, people found various exploits to do this, but the loopholes are largely gone by now. I can't imagine banks caring if people cycle credit for sporadic large purchases, like taxes, cruises, or the like.
Manufactured spending is still going strong.
Yes, but a lot of the more "lucrative" versions are gone (e.g. buying crates of dollar coins and then returning them).
Never had a problem here in the UK but I know some friends in China and Singapore have encountered issues and sanctions were applied by the issuing credit card company unfortunately also had their linked airline frequent flyer accounts terminated.
Banks probably also frown on people paying their balance in full every month too. They would much prefer if you run a big balance, (or even a smaller balance) into the next billing cycle so they can hit you up for 31% interest.
Like with most things in the credit card/points & mile world, in moderation you are probably fine. Like buying an occasional gift card from a grocery store with your Amex Gold. Cycling your credit a couple times a year will not get you shut down by Chase, Amex, etc. Doing it multiple times every month...I wouldn't.
I recently received a retention offer from Citi for 2 extra TYP per dollar on one of my Custom...
Like with most things in the credit card/points & mile world, in moderation you are probably fine. Like buying an occasional gift card from a grocery store with your Amex Gold. Cycling your credit a couple times a year will not get you shut down by Chase, Amex, etc. Doing it multiple times every month...I wouldn't.
I recently received a retention offer from Citi for 2 extra TYP per dollar on one of my Custom Cash cards, up to 35k extra points in 6 months ($17500 spend). The card only had a $2k limit, so the first couple months I cycled my credit. Then they just increased my credit limit without asking me. So yeah, they didn't seem to mind.
If you never exceeded your credit limit, then it's not a problem.
Credit cycling is definitely a problem. The level of "being a problem" differs by bank, but some banks will close your accounts even if you never exceed your limit.
I did this with a PayPal card issued by Syncrony Bank. I made several payments during the same billing cycle to keep my balance down. Then I noticed Syncrony Bank was not crediting the payments against my credit maximum. I paid my balance down to $0 but had no credit available on the card. The card had a $15,000 credit limit. Just dumb.
Synchrony is famous for this and this is why some people avoid them.
I mean financial security is malleable. Even the wealthy can take an unforeseen hit. So from the perspective of the bank or lender, it makes total sense that sudden large expenditures that max the limit—no matter how they get paid off—indicate potentially increased liability ahead. If I'm the bank, or its algorithm or whatnot, the customer behavior I'm looking for is: large purchase > request credit limit increase > large purchase > large purchase. Rather...
I mean financial security is malleable. Even the wealthy can take an unforeseen hit. So from the perspective of the bank or lender, it makes total sense that sudden large expenditures that max the limit—no matter how they get paid off—indicate potentially increased liability ahead. If I'm the bank, or its algorithm or whatnot, the customer behavior I'm looking for is: large purchase > request credit limit increase > large purchase > large purchase. Rather than cycling.
"If I'm the bank, or its algorithm or whatnot, the customer behavior I'm looking for is: large purchase > request credit limit increase > large purchase > large purchase. Rather than cycling."
... Which is very stupid because it's less risky for the bank if the customer has the money to pay off their charges (and does so) rather than the bank extending more credit without the customer paying anything off.
I had to buy and new furnace and ac a few years back. I wanted to put it on my AMEX card. My credit limit did not cover the total cost. I called AMEX and they told me to do this or make a payment to them for the entire cost in advance and that would effectively extend my credit limit, I did not sense at all they were concerned I would do this. I did the credit cycling option and never heard from them about it.
I have to do this on particular UK card for which I have an inexplicably low limit. Otherwise I won't hit their spend requirements for a voucher. I feel if they didn't want it to happen they could easily stop it from occurring, so it mustn't be a big issue
Ask Benjy over at MtM whether cycling is risky.
Credit cycling is a risk factor, yes - though having a mature/aged account will typically keep you from getting into trouble.
The typical risk factor from the bank's perspective is that ACH transactions can actually be returned up to 90 days later. So whereas a "normal" non-cycled account has a risk exposure to the bank of the credit limit they've extended to you, cycling increases that exposure by some multiple.
For instance, a common...
Credit cycling is a risk factor, yes - though having a mature/aged account will typically keep you from getting into trouble.
The typical risk factor from the bank's perspective is that ACH transactions can actually be returned up to 90 days later. So whereas a "normal" non-cycled account has a risk exposure to the bank of the credit limit they've extended to you, cycling increases that exposure by some multiple.
For instance, a common fraud involves someone maxing out and paying down a card multiple times in a statement cycle, then getting all the bill payments returned such that the bank loses (say) 5 times the credit limit.
If you cycle heavily, banks that specialize in handling large-volume transactions (eg Amex) will typically start to require payments by wire transfer, which is non-returnable, to prevent this.
This is a great explanation, thank you.
Life must be so hard in then US given all then things you guys need to worry about. I imagine one needs to constantly watch their backs to keep from getting screwed over by some big corporation since you dont have any real consumer protection over there.
Oh those scary big corporations. What a sad life you must have, constantly seeing hobgoblins everywhere. Don't worry, your omnipotent government will protect you. Personally, I'd rather be screwed over by a big corporation than by an overbearing government. You can take your business elsewhere when a corporation screws you...a government, not so much.
Don't worry Mantis the US government is just as bad, if not worse. Ever hear of the IRS? For example, the US is the only country that taxes citizens on their worldwide non-US income even if you haven't stepped foot in the US for the past 30 years. That's why many Americans renounce their citizenship every year!
How cute is it that Mantis has actually fallen for the illusion of choice that corporations work so hard to create. Try, for example, to map out where the food you eat in a day comes from all the way down the supply chain and you'll see what I mean.
Speculation: Cycling via foreign "charities" or offshore entities may attract more attention than paying for biz travel or taxes.
I do this at least 4 times a year when I pay my taxes. Never heard anything negative from my issuers.
Has anyone else?
I could see it as an issue for banks as their risk increases, remember chargebacks can still occur even if you paid off the balance although the balance is paid off it skews their risk money. So could see it as spending “risked money” which they wouldn’t wanted to
I doubt this can be an issue as it’s fairly common for younger business travelers to pay their CC bills as their expense report checks post so they don’t breach their CC limits.
Banks vary when your credit utilization during a statement cycle is reported. I would imagine if your utilization on a CL is normally small except for the day you max it out is a big red flag.
I also pay my estimated quarterly taxes and final tax payments doing this and have never had any issues. Seems like as long as you pay your bill and your total spend doesn't exceed your limit, one should be OK. Never heard of anyone having any problems doing this.