Credit Card Expert Blog

Credit Card Profits And Losses

Let me give you a little insight into how credit card companies make money and how credit card companies lose money.  Credit card companies make money in two ways and only one of those ways involves the bill you pay each month.  Aside from the other financial shenanigans that credit card companies get involved in such as investing and all of that other stuff the credit card companies make money by charging the store you bought that vase from a small percentage of the cost of that sale as a service charge.  Credit card fees to companies accepting credit cards these days can get as low as 2% or 3%.  It used to be a lot more than that and that is why places like fast food restaurants would never take credit cards.  Their profit margins are too low and the credit card usage fees were too high.  Now that the credit card companies have lowered their usage fees more places can take credit cards.  Credit card companies also make money from you not paying your bill in full each month because when you pay in installments you are charged interest and service charges each month and that is big money for the credit card companies.

Credit card companies lose money when you don’t pay your bill on time or when you default on your credit card.  A credit card company is a bank and they operate like a bank so when you do not pay your bill on time then they have to carry your payment over into the next month and that costs them money to hold your money that much longer.  That is why they charge late fees.  When you default they are not only stuck with the cost of what you charged on your card, and the cost of carrying that money for you without you paying, but now they have to hire a lawyer to write you nasty letters and file all the forms necessary to sue you to get their money.  Credit card companies hate hiring lawyers so if you find yourself in a situation where you cannot pay your bill I suggest you try and work with your credit card company before you decide to default.  If you are willing to pay something then they will be willing to at least listen to what you have to say.

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