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It is universal fact that no company operate in loss otherwise they will not exist in business. So how the credit cards companies make money to sustain themselves at same time they give you cashback, travel, etc rewards too. What are the catch behind such lucrative offer and sustain business too?
Some cards charge a yearly fee, they also charge an over the limit fee (if you go over the limit, a late fee and interest. Now if you are like me, I use a card for almost all purchases, but I pay it off completely each month so I pay none of those fees.
However, every time I swipe the card or use if via the internet, the merchant has to pay a fee (I believe 1-4 percent of charged amount). I believe it still relates to how large the merchant is and the volume they submit to the card company on a monthly basis. Walmart is probably at the lowest end of the fee scale, while Joes Plumbing in Lander WY (made up place) pays on the high end of the scale.
Most cards carry a higher than average interest rate also. Mine is 9.9% although I never carry a balance. I have heard of some that were close to 20% or more per yeaR. If the cardholder keeps 3000 on the card for a full year at 20% you are talking 600 per year and they (the card companies) can borrow at under 4%.
Merchant fees are not under the control of any credit or charge card holder so they aren't "irresponsible" in what they choose.
Fees including annual and interest are another matter, but then again a good part of the US population do not have many options. It really all comes down to your credit report/scoring.
If you have a high credit score and excellent credit record, then yes, you'll get lower interest rates and better deals on cards. OTHO those who do not will see the opposite.
Worse credit card companies as a result of the past fiscal crisis and newly enacted legislation are keen to sort the wheat from chaff so to speak. They all monitor your history and credit report carefully. One thirty day late/missed payment can have your interest rate bumped up and or even account subject to suspension/cancellation.
As the other poster mentioned credit and charge cards make their money on merchant fees and interest rates. Just like banks they make money on the spread between rates they can borrow money versus interest rates charged.
I have a free Citi 2% cash back card. My account auto-pays in full every month. Citi probably loses money on me since a lot of places where I spend my money have negotiated rates less than 3%.
But yeah, the whole credit card industry is propped up by moron cardholders who carry a balance and pay those outrageous interest rates.
It is universal fact that no company operate in loss otherwise they will not exist in business. So how the credit cards companies make money to sustain themselves at same time they give you cashback, travel, etc rewards too. What are the catch behind such lucrative offer and sustain business too?
Yearly fees charged to clients
Transaction fees charged to merchants.
Obviously the interest paid by customers.Most people make minimum payment thus paying maximum interest over time
All those "rewards" are not used by most clients and even if used most dont use ALL the rewards/offers. Sort if like gift cards. Lots of money left on those cards.
The majority of clients who are paying the minimum payment/maximum interest easily carry or support the ones who use the incentives or pay cc early. Like f5fstop I don't carry cc balances. I use my cc during the month but I pay it off at the end of the month.
Most people can charge 3-5k on a card and make a 30-50 dollar minimum payment. But that payment is mostly interest. And if youre paying minimum payment you'll be paying for 20 years. That's if you never use that card again
Last edited by Electrician4you; 01-09-2016 at 08:55 AM..
Merchant fees are not under the control of any credit or charge card holder so they aren't "irresponsible" in what they choose.
I said merchant fees AND interest paid by irresponsible card holders.
1) Merchant fees. Fees paid by merchants to credit card companies on every purchase.
2) Irresponsible card holders. Card holders that run their cards up to the max credit limit and pay 20%+ on the balance.
I don't know how you interpreted what I posted the way you did.
I have a free Citi 2% cash back card. My account auto-pays in full every month. Citi probably loses money on me since a lot of places where I spend my money have negotiated rates less than 3%.
But yeah, the whole credit card industry is propped up by moron cardholders who carry a balance and pay those outrageous interest rates.
Wouldn't exactly call such persons "morons".
For decades now Americans have masked declining wages by using credit in order to maintain a certain standard of living. We saw this when the *** hit the fan with the recent credit/fiscal meltdown and the resulting chaos as many households found themselves cut off.
The average middle to upper class family often relies heavily upon credit and yes they carry balances. Credit cards finance everything from family vacations to various consumer/household goods. Sadly in a perverse way the American economy is so heavily dependent upon consumer spending that if persons stopped living beyond their means (using credit and carrying balances) all heck would break lose in the economy.
For decades now Americans have masked declining wages by using credit in order to maintain a certain standard of living. We saw this when the *** hit the fan with the recent credit/fiscal meltdown and the resulting chaos as many households found themselves cut off.
The average middle to upper class family often relies heavily upon credit and yes they carry balances. Credit cards finance everything from family vacations to various consumer/household goods. Sadly in a perverse way the American economy is so heavily dependent upon consumer spending that if persons stopped living beyond their means (using credit and carrying balances) all heck would break lose in the economy.
Actually that's all you can call them. You don't go on vacations, you don't go buying stuff using cc when you're financially on the rocks. But most need to hide the fact they are in financial hell so they keep hurting themselves by borrowing more. All because of some ego r gotta keep looking successful. If people just stopped believing in this gotta keep some appearance of wealth when you truthfully are eating top ramen to afford that 60k whatever on wheels or have a fancy zip code THEY would be better off.
Years and years ago we had a rough patch financially. I won't lie it sucked. I think around 97-98 I couldn't get a lot of work, my wife was working for less money and we could do two things. We could give everyone the appearance we were doing fine go to dinners buy stuff live like nothing was wrong and live off credit cards or we could tighten the belt and tread carefully. Guess which we did. I realized back then how little I really cared what someone thought about what I drive wear or live. I have never felt the need to play keep up with the Jones game.
It is universal fact that no company operate in loss otherwise they will not exist in business. So how the credit cards companies make money to sustain themselves at same time they give you cashback, travel, etc rewards too. What are the catch behind such lucrative offer and sustain business too?
Interest. Overdraft fees, late fees, HIDDEN fees...They are all scam as far as I'm concerned. I don't use any sort of credit cards. Cash is king.
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