Pay Your Balance & Card Issuers Still Profit?
Credit card issuers profit whether you carry a balance or not…
If you’re able to pay off your credit card balance each month - congratulations! Never having to pay interest charges or late fees, you’ll avoid the debt problems that many Americans face, and you many even be able to earn big rewards by using a ‘reward credit card’. This is great news for you as a consumer. But how does the credit card company feel about customers like you who never carry a balance and appear to be getting something for nothing?
The truth is, credit card companies are making plenty of money off of your account - it just doesn’t come directly from your pocket. The second biggest source of revenue for credit card companies comes from merchants who accept credit card payments. For every purchase made using a credit card, a charge of 2% is to be paid to the issuer. When you make a $100 purchase, the merchant keeps $98 and pays the credit card company $2. Most merchants accept the trade-off because credit cards boost their sales. So, although you pay no interest or service fees, every purchase you make is generating a steady stream of merchant fees for the credit card company. Last year, merchant fees accounted for an estimated $12 billion.
But issuers still make their largest profit from consumers who carry a balance month-to-month. Last year, interest payments and cardholder fees created an estimated $23 billion in revenue for credit card companies. Here’s how they added up:
- Interest Payments - The biggest revenue chunk is from people who carry a balance, estimated at 60% of cardholders - who pay interest for the privilege of borrowing over time.
- Cardholder Fees - The second biggest revenue producer comes from the annual, late payment and over-the-limit fees. Credit card fees on average will cost you $45 annually; late payment fee charge $34 and $31 for going over your credit limit.
- Convenience Service Fees - Requesting a cash advance or using a convenience check will cost 2 - 4% of the total with a minimum fee of $5.
- Payment by Phone Fee - Some companies charge a fee of between $5 and $15 for making a payment on time by phone.
The easiest way to avoid filling the credit card companies’ pockets is to pay your bill in full each month. And do your best to avoid hidden credit card fees! Although credit card companies will still profit from merchants HAVE TO accept credit cards, you have a choice!
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