Credit card question

[Jay Jolliffe]

If you pay the balance every month how do they make money if there is no interest.

[Chuck Wintle]

If you pay the balance every month how do they make money if there is no interest.
I believe the merchant pays a fee to use their services and this fee is passed on to the consumer. I think this is how it works.

[Mike Kreinhop]

Credit card issuers and networks charge the merchant a combination of interchange or flat fees for each transaction.

[Nicholas Lawrence]

Credit card issuers and networks charge the merchant a combination of interchange or flat fees for each transaction.

Correct. This is why you sometimes see "cash discount" signs at gas stations and other businesses. And the fees vary, which is why some businesses won't take certain cards (discover for example).

[Jay Jolliffe]

I knew they were getting paid somehow..They wouldn't be doing it for free...

[Frank Drew]

The credit card companies are much happier with their customers who don't pay off their balance each month; I think they make their real money from the interest charges.

[Stan Calow]

That means that merchants increase their prices to everyone to cover that fee to the CC companies. So effectively people who use cash are helping pay for the CC fees anyway.

[Brian Henderson]

The credit card companies are much happier with their customers who don't pay off their balance each month; I think they make their real money from the interest charges.

And since so few people pay in full every month, the CC companies don't care. Interest rates are so high that the CC companies are raking in enough money that they don't care about people who don't pay interest. That's why all the ads you see for credit cards are encouraging people to spend more money. It just keeps them flush with cash.

[Barry McFadden]

The credit card companies are much happier with their customers who don't pay off their balance each month; I think they make their real money from the interest charges.

I agree....I think they probably make the vast majority of their money from interest..... I believe if everyone paid their account in full every month the credit card companies would be out of business...

[John K Jordan]

I agree....I think they probably make the vast majority of their money from interest..... I believe if everyone paid their account in full every month the credit card companies would be out of business...

I suspect they would just up the transaction and card fees. This would cause merchants everywhere to increase prices to cover the fees. Thanks to those who carry a balance for doing their part to keep prices down! :)

Those who never carry a balance are known in the credit card industry as "Deadbeats." The credit card companies hate 'em; the credit rating algorithms love 'em.

DEFINITION of 'Deadbeat' A slang term for a credit card user who pays off his or her balance in full and on time every month. A deadbeat, also called a “nonrevolver” or a “transactor,” gets this derogatory name by being a potentially less profitable customer for a credit card company than a revolver, or someone who carries a balance from month to month.

More, and how they still make money from the Deadbeats:
http://www.investopedia.com/terms/d/deadbeat.asp

What I find fascinating (and somewhat difficult to believe) are the average balances and the statistics on who has credit card debt. For example, look at the average debt by household income:
https://www.valuepenguin.com/average-credit-card-debt Incredible.

I use a card for almost everything, farm equipment, building materials, tools, wood, feed, vet bills, etc., and just pay it off every month. The frequent flyer miles from this are usually more than we can use and cover all our vacation flights, domestic and abroad. My wife uses a different card the same way for miles from a different airline so we have more travel flexibility. I know a guy who made all his house and property payments with AMEX just to rack up miles. Anyone who likes to travel and doesn't get miles from a card is missing out!

JKJ

[Jim Becker]

I guess I'm a deadbeat...no balances. 850 credit score. :) I rarely carry a balance and in those few instances where it's occurred, it was a major purchase with a planed payment over say, two months or three months on purpose for budgetary reasons. (by example, I split our whole house generator over two payments and gained a boatload of points that pretty much covered the little bit of one month interest on half the balance)

[Charles Wiggins]

Incidentally, studies show that we spend more when we use plastic as opposed to cash. That's why fast food restaurants starting taking cards a few years back. It seems that swiping a card doesn't register with our pain center in the same way that pulling cash out and handing it over does.

https://www.nytimes.com/2016/03/27/your-money/credit-cards-encourages-extra-spending-as-the-cash-habit-fades-away.html

[David T gray]

https://www.reddit.com/r/churning/ i make about 4k a year using many credit cards that doesn't even include the usual % back on every purchase like when i bot my tools from minimax i got $500 + 2% back off the order.

[Allan Dozier]

Believe me they make zillions on the merchant fees. Just imagine how much is spent on Amazon and Ebay every single day, one to two per cent of that is immense. My own company pays over 50 grand a year in merchant discount fees but very few businesses can afford not to take charge card payments.

[John K Jordan]

Believe me they make zillions on the merchant fees. Just imagine how much is spent on Amazon and Ebay every single day, one to two per cent of that is immense. My own company pays over 50 grand a year in merchant discount fees but very few businesses can afford not to take charge card payments.

I know of one company that lost at least $20K in purchases from me alone when they quit taking AMEX - they didn't want to pay the fees. OTOH, my eye surgeon signed up to accept AMEX in '99 because I wanted to use it for LASIK surgery.

JKJ

[Mike Null]

I pay a transaction fee and a percentage of the sale when my customer uses a credit card. As for myself, I pay mine off every month and accrue 1% in rebates.

[Matt Meiser]

I guess I'm a deadbeat...no balances. 850 credit score. :) I rarely carry a balance and in those few instances where it's occurred, it was a major purchase with a planed payment over say, two months or three months on purpose for budgetary reasons. (by example, I split our whole house generator over two payments and gained a boatload of points that pretty much covered the little bit of one month interest on half the balance)

This is pretty much our mentality too. We'll occasionally use one of the 0% interest deals for a major purchase and just divide the balance by 18 or whatever. We put everything from gas to groceries to any bills we can on our Costco card. With a major family vacation and my 3rd work trip of the year coming up we have a HUGE rebate coming next year. The only thing that doesn't go on there is Amazon--got the store card for that recently since the % back is higher, and you get to use it against the balance immediately.

[John Terefenko]

who cares. Just as long as they are not making from me.

[Chris Parks]

I have a friend who runs a truck fleet on credit cards, everything goes on them and he reckons he has enough FF points for him and his wife to fly 1st class around the world half a dozen times. I simplified mine by having an automatic payment pay the required balance on the due date.

[Steve Peterson]

The credit card companies are much happier with their customers who don't pay off their balance each month; I think they make their real money from the interest charges.

I think the CC companies make around 2.5% on the transaction if you pay the balance right away. Assume that there is a 3 week delay from the end of the cycle until the bill is due. Some of the money has been loaned out for as long as 7 weeks and some has only been loaned out for 3 weeks. They are earning over 18% annually on the balance that is 7 weeks old and 43% on the 3 week old balance. That is a really good rate of return.

If the customer keeps the balance, then the CC company makes even more money.

Steve

[Matt Meiser]

You need a better credit card if they are charging you interest before the next billing cycle even if you pay that balance in full by the due date.

[John K Jordan]

You need a better credit card if they are charging you interest before the next billing cycle even if you pay that balance in full by the due date.

I thought he was referring not to interest but to the transaction fee charged the merchant, considering it as if it were an annual percentage on an extremely short loan.

JKJ

[Matt Meiser]

Ah, I read it as interest the consumer was paying. I think there are cards that do, probably in the "predatory" category.

[Brian Elfert]

I owned and ran a small business for five years. We charged a monthly fee for service. I did auto pay with credit cards or sent a monthly invoice. Taking a credit card or mailing an invoice cost about the same amount, but I preferred credit card payment as no chasing down payment.

I pay for everything with credit if I can. It would be unusual to spend less than $1,000 a month on credit. I pay off the bill the day before it is due every month. I have one credit card with a 5% rate that I have run a balance on from time to time because the rate is low.

[Bruce Wrenn]

CC companies like "dead beats," as they tend to charge everything, racking up lots of merchant's fees. Recently I paid off a CC. Called to get EXACT payoff. Figure quoted was $0.63 more than pay off. So now I have a $0.63 credit on a paid off (and closed) CC. Each month they faithfully send me a statement showing a $0.63 credit. Wonder how long it will take for them to figure out it would be cheaper to send me a check for $0.63?

[Bill Jobe]

I come at the issue from the other end. I am a member of a local credit union. It is one of their highest paying savings plans. They pay me interest to use their credit/debit card. I began using it perhaps 12-14 years ago, maybe longer, when they were paying me over 5% interest on the balance in my account. That was far above a regular savings account. The only conditions were to do my banking with them online and use their credit/debit card 12 times per month. And they paid that higher interest rate for a balance up to $25,000. Over that amount drops you down to their regular interest on savings. No debt, and higher interest rate for savings.
Their name for their program was "Checking Plus".
Look around for credit unions in your area and start drawing higher interest on your savings. I still can't believe and have been looking for a downside to this, but that's where $25,000 of my money is. Of course with today's lower interest I'm only getting a little over 1%, but it's great to use a credit/debit card for everything. Just one example: It's late at night, your gas tank is on empty, can't find an open gas station. No problem, their pumps will still take your card. That has rescued me a couple of times.
Check into it. (Pun not intended)

[Jim Koepke]

Incidentally, studies show that we spend more when we use plastic as opposed to cash. That's why fast food restaurants starting taking cards a few years back. It seems that swiping a card doesn't register with our pain center in the same way that pulling cash out and handing it over does.

A cash customer likely looks into their wallet before making an order. The card customer likely just looks at the menu and thinks what the heck, supersize everything.

jtk

[Matt Meiser]

Perhaps, but I can't tell you the number of times uttering the phrase "well then I'll just contact my card issuer and let them deal with it" has suddenly changed someone's attitude on a problem over the years. Pretty sure Treasury doesn't do that. ;) I've also taken advantage of insurance on items bought on the card a few times over the years. Those, coupled with the rewards, I'd guess I'm way ahead.