Hack Your Credit Card Rewards With Credit Cycling

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One of the big advantages of owning a credit card is the ability to accumulate points that can be redeemed for rewards later on. 

Many credit card holders might already know the best practises to maximise their points gain, be it with travel cards, or loans. However, there are also some less known hacks to help you increase your points gain as well. 

What is credit cycling

Each credit card is assigned a credit limit. This is basically the amount a lender is willing to lend you. Credit limits can be affected by a number of different things, such as your income, DSR, and so on. 

Conventionally, you will spend up to that amount each billing cycle on your card and then pay it off at the end of the month.

Credit cycling occurs when you max out your credit card, pay it off and then make more charges several times in a single statement period. In a way, you are artificially increasing your credit card limit by hitting the credit limit several times within the same billing period.

This works because your credit limit is not a monthly limit. It is just how much you can charge to the card at any given time. So, off what you owe resets the amount – regardless of the amount of time left in your billing cycle.

The benefits of cycling credit

There can be any number of reasons as to why you might want to cycle your credit card. By doing so, you can reach certain financial goals, and for others, it might be a necessity under certain circumstances.

For example, you may have to pay for a medical bill that is above your current credit limit. You can cycle your credit and pay the bill in increments until you zero your debt. 

Overcome low credit limit. If you have a very low credit limit, credit cycling can help you pay for essentials throughout the month that you otherwise would not have been able to pay using your card because of the small credit line.

Optimise credit card rewards. For those seeking to cash in on their credit card sign-up bonuses more quickly, credit card cycling can help them do so. For example, if your starting credit limit is RM1,000 but your sign-up bonus requires you to spend RM5,000, cycling your credit card will help you get to RM5,000 sooner instead of the minimum five months. Rewards optimisers might also cycle their credit to earn more points, miles or cash back. 

Before signing up, you should always compare and find the best credit card for rewards, travel, balance transfer or zero annual fees to suit your needs.

The risks of cycling credit

While credit cycling has many benefits, there is a good reason as to why banks assign you a credit limit. So you can see why circumventing that limit repeatedly could potentially cause some issues.

To reiterate, issuers assign card holders a certain credit limit based on income and payment history, and other factors. Issuers take on risk whenever they issue someone credit. The total credit limit that they assign to you reflects the amount of risk that they are willing to take with your account.

Risk of suspended credit line or account closure. By cycling your credit, you can spend outside of your assigned credit limit. However, this kind of behaviour can make issuers feel uncomfortable, since you are borrowing a lot more money than the issuer believes that you can realistically pay back. This may lead to issuers taking actions such as closing the account to avoid losses on their end. 

Impact on credit score. Credit cycling could also potentially have a negative effect on your credit score. This also depends on when your card issuer reports to the crest bureaus. Credit utilisation (or debt service ratio) is one of the big factors that determines your credit score. 

Charges may be imposed. If the issuing bank chose to treat it as using the ‘over the limit’ facility, there may be charges imposed. Other banks may charge based on a percentage of the amount over your approved card limit. 

Generally speaking, the lower your credit utilisation rate, the better your credit score. If you did not manage to pay your balance back down by the time your statement closes, the credit bureaus are going to see a maxed out card on your account, which could result in a drop in credit score.

Alternatives to credit cycling

The core principle of credit cycling is to artificially increase your credit limit. However, there are other alternatives that you can look at to increase your spending power. These include:

  • Requesting and increase to your line of credit
  • Getting another credit card
  • Move credit limits between cards (Though this method only works if you have multiple cards with the same issuer)

While some may be able to cycle their credit without issue repeatedly, others have faced shutdowns or had their bank accounts suspended. Ultimately, the amount of credit cycling that a credit issuer tolerates varies from one institution to another.

Keep in mind that banks can also change their policies as well. This means that something you have been doing for many months, or even years, could suddenly be disallowed according to the new terms and conditions of your credit card. If you want to stay on the safe side to avoid getting your card shut down, you may want to avoid repeated cycling of your credit limit.

Disclaimer: Certain banks may not endorse credit cycling. Please check with your respective bank before doing so. Additionally, never max out your credit card unless you are able to pay your debts off in a timely manner.

Read More: Understanding Credit Card Payments; Which One Should You Pay?

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