What is credit cycling, and should you do it to earn more points?
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Elevating your points and miles earning typically means strategizing to spend as much as you can (responsibly) on your credit cards. It makes sense to spend to earn sign-up bonuses, maximize category bonuses, or even earn elite status from loyalty programs.
Many consumers already know some of the best practices when using travel rewards credit cards, such as paying your bill on time and in full each month and not missing the spending requirement deadline to earn a sign-up bonus. And you may also know it's best to avoid violating banks' policies or doing something that might result in your points being clawed back or your accounts getting shut down.
In an effort to gain as many points as possible, though, some people consider cycling their credit limit. So is credit limit cycling acceptable, or will you run into issues with your issuer? Some folks do it with no consequences, others say it's seen as risky behavior by the banks. Let's dive into the potential issues and the considerations you should keep in mind.
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What is credit cycling?
When you are approved for a new credit card, the bank assigns you a credit limit, which is the maximum amount of credit a lender is willing to extend to you. Credit limits are usually set based on factors such as your credit score, income and credit history, to name a few. Typically, you can spend up to that amount each billing cycle on your card and then must begin paying it off.
Cycling your credit limit occurs when you max out your credit card, pay it off and then make more charges (or even max it out again) several times in a single statement period. It's basically using your credit limit several times within a single billing period to raise your credit limit artificially.
Cycling is not the same as simply paying your bill in full before the due date. Likewise, it's not making multiple payments per month, either. Both of those things are fine to do. What adds to the cycling aspect is spending up to your credit limit, paying it off, and repeating that process multiple times within the same billing cycle.
Related: Does it hurt to pay off your card balance before the billing cycle ends?
Reasons why you may want or need to cycle your limit
Let's say you open a new card and the bank gives you a low $500 limit. But to meet the minimum spending requirement for the sign-up bonus, you need to spend $3,000 in three months. That's going to be tough when your credit limit is only $500. So you may need to spend $500, pay it off, spend another $500 twice in the same billing cycle for three months in a row.
Spending in this manner for a short time period is unlikely to result in any negative consequences from the bank, especially if you can justify it by explaining you wanted to meet the requirements for the sign-up bonus.
Another reason why you may need to cycle your credit limit is for a temporary need to make multiple large purchases. Maybe you're paying college expenses like tuition and books for the semester, planning a wedding, or undertaking a home renovation. Paying for these things might require multiple transactions that equate to more than your credit limit. By cycling your limit, you are, in effect, artificially and temporarily raising your credit limit to meet your needs.
Related: When is it time to ask for a credit limit increase?
The risks and consequences of cycling your credit limit
While there are legitimate reasons to cycle your credit limit that probably won't draw the ire of your bank, there are a few things that might raise eyebrows.
If on your application, you report your annual income as $40,000, but you cycle $10,000 through your credit card a few times a month, you may get eyes on your account. Sure, you could be buying work supplies for your employer and getting reimbursed, paying for a one-off event, or withdrawing from your savings account to pay off some one-time purchases. But the bank doesn't know that.
This type of behavior using an American Express card could trigger a financial review where Amex may request to review your tax information and bank statements.
If you're cycling your limit to abuse bonus categories — for example: the limited-time opportunities to earn more points than usual on groceries — you could face a points clawback as a consequence.
Chase has also been known to shut down accounts for what they consider risky behavior, which could include cycling your credit limits.
Alternative strategies
If you're making several large purchases and need to spend more than your credit limit allows, one alternative is to ask your issuer for a credit limit increase. If you have multiple cards from the same bank, you also can request to shift part of your line of credit from one card to another, so that way instead of two cards with mid-size limits, you have one card with a larger limit that you can use for higher spending. Having a card with a higher limit will also help keep your utilization ratio lower on that credit card, which could provide a small boost to your credit score.
If your limits are too low and you only have one or two cards, you may also want to consider applying for a new card. We're currently seeing some of the best intro bonuses in history for many cards, including the Chase Sapphire Preferred Card and The Platinum Card® from American Express, both of which require a substantial amount of spending to fulfill their welcome offers.
Related: The best increased credit card sign-up offers right now
Bottom line
While some people may be able to cycle their credit limit with no repercussions, others have faced shutdowns or had their points clawed back. What's tolerable may vary between lenders and depend on your history with a bank.
Banks can also suddenly change their policies and something you've been doing for many months, or even years, could suddenly be disallowed in the terms and conditions of your credit card. If you're not comfortable with the prospect of being shut down, you may want to avoid repeated cycling of your credit limit.