How do Credit Card Companies make money?

[Sooon]

Also I like how some people treat you differently for using a Platinum card lol.

The funny thing is I've read that the Platinum card is the easiest Amex card to get. They accept just about anyone who applies because it's a charge card that requires payment in full every month and there's a huge annual fee, so there's limited exposure on their end. I got the 100k offer too, but will be cancelling it soon as I don't travel much.

 

[edro]

The surge has left the average household credit card balance at almost $7,200

I carry >$5000 each month on my credit cards... but pay it off each month.
Am I included in that statistic? Or is it considering people who carry $7200 without paying balance off? Is that what is meant by "carrying"?

 

[s0me0nesmind1]

The funny thing is I've read that the Platinum card is the easiest Amex card to get. They accept just about anyone who applies because it's a charge card that requires payment in full every month and there's a huge annual fee, so there's limited exposure on their end. I got the 100k offer too, but will be cancelling it soon as I don't travel much.

I was pretty shocked that I got like... insta-approval.

I did have a bit of a weird thing as far as that whole pay in full concept goes... So my first month I spent... let's say... $1800. Ok. Cool. Well, $200 of that was "airline fees" to be reimbursed that hadn't yet. So I paid $1600 and expected the $200 fee to be the remainder of the balance.

Well, they credited the airline fees, yet it still said payment was due. I was like wtf?

I ended up paying it anyways, because It really didn't matter whether I paid my next balance now or later to me... but still.... if I assumed that covered the full bill I might have been charged some type of fee.

 

[NikolaeVarius]

I carry >$5000 each month on my credit cards... but pay it off each month.
Am I included in that statistic? Or is it considering people who carry $7200 without paying balance off? Is that what is meant by "carrying"?

Carry without paying.

 

[Schfifty Five]

I am a person who never carries a balance, pays off in full every month. Have been that since I was 18. However, I spent a few years with a pretty big balance. It took a long time to sell my old place after I bought my new place, and my woman at the time was supposedly going to help cover bills.

Anyhow, that was a lie, she claimed she whould help contribute to bills, but in reality, she simply spent my money and didnt help with shit. So, I depleted 100% of my savings, and then over the course of about 6 months, I managed to get my CC balance up over 10K and I finally sold my old place.

Anyhow, after I dumped her, I was able to pay off my CC balance within about 2 years. Since then, (about 8 years later), I've finally finished paying off the 2nd mortgage that I got when I bought the house.

Next time, I will wait until AFTER I sell my old place before I buy the new place.


Anyhow, during that time, I probably paid 3000 or 4000 in interest to BOA for the credit card.

Probably could have said all that in 3 sentences, and with less "Anyhows".

Also, your first sentence said you never carry a balance and then you go into saying that you carried a huge balance.

 

[Svnla]

I carry >$5000 each month on my credit cards... but pay it off each month.
Am I included in that statistic? Or is it considering people who carry $7200 without paying balance off? Is that what is meant by "carrying"?

You carry balance => you do NOT pay off the whole balance by due date.

For example. Joe has a balance of $5,000 but pays off the whole thing by due date => no carry balance => all good, no interest cost.

Bob has a balance of $5,000 but is only able to pay $1,000 by due date, therefore, he carries a balance of $4,000 => will have to pay interest on that $4,000 until he pays it off.

The funny thing is I've read that the Platinum card is the easiest Amex card to get. They accept just about anyone who applies because it's a charge card that requires payment in full every month and there's a huge annual fee, so there's limited exposure on their end. I got the 100k offer too, but will be cancelling it soon as I don't travel much.

Easiest? Where did you read that? I have the AE Platinum (with annual fee) for traveling and AE Old Blue Cash Back (no annual fee) for groceries, drug stores, and gasoline (5% cash back on those categories up to $50K spending cap per year). And then my normal spending is with Citi 2% cash back (no annual fee) and no spending cap and then my secondary cards of Capital One Quick Silver 1.5% cash back with no cap and no annual fee and BoA 2% cash back on groceries but with $1.5K spending cap per quarter and no annual fee.

Yes, I am a CC whore (rarely have any cash on me) but I am loving it because of all the benefits and cold hard cash back (of course, I pay off ALL of my balances before due dates).

Maybe one day I will get the AE Black Card.

 

[BurnItDwn]

Probably could have said all that in 3 sentences, and with less "Anyhows".

Also, your first sentence said you never carry a balance and then you go into saying that you carried a huge balance.

Yes. I dont carry a balance, but a woman drained me for every penny and I was dumb enough to stay around for the ride. It also doesnt help that I lost like 40K in house price dropping before I finally sold the old place.

 

[SlitheryDee]

I'm guessing the big ones are retailer fees and interest with retailer fees making up the vast majority. Think about it. They get a small cut of every single credit card transaction made by charging the retailers a percentage of each sale plus a flat transaction fee. That's a TON of money.

 

[TheGardener]

Yeah, the balance interest is mainly to cover the deadbeats. The merchant fees is where they generate the profits.

Actually Credit Card companies have a name for cardholders who pay off their entire monthly balance every month ... deadbeats. This is because the card companies make little money off them. They'd rather you pay the minimum balance and even miss a few payments. That way they make 20 percent plus interest and some late fees off of you.

 

[TheGardener]

The cost of a golddigger is far worse than an annual charge on your credit card. Then again you hopefully got positive something out of it.

 

[s0me0nesmind1]

The cost of a golddigger is far worse than an annual charge on your credit card. Then again you hopefully got positive something out of it.

I would hope you wouldn't want anything positive out of a gold digger.... :hmm:

 

[TheGardener]

I would hope you wouldn't want anything positive out of a gold digger.... :hmm:

Pretty sad, if a guy got absolutely nothing. Of course in end, he'll lose.

 

[Exterous]

Not if you have good benefits from said card. For example, I get $200 travel credit per year from AE Platinum then $100 credit for TSA Global Entry, then free entry to nice airport lounges, and other travel benefits. Also, I earned 100K MR points when I opened the AE Platinum card and sold them for over $1K, and on and on.

Of course, if you do not travel as much as I do, those benefits are not worth it to you.

Their Fine Hotels and Resort program and medical evacuation coverage for card holder and immediate family are two big reasons I still have that card

 

[BurnItDwn]

Pretty sad, if a guy got absolutely nothing. Of course in end, he'll lose.

Its a trade off, short term fun, long term misery. Anyhow, that was like 10 years ago, I was in my 20s, and now, I am engaged to a woman who is competent with managing money, and, also a great cook.

 

[Sooon]

Easiest? Where did you read that?

I saw a thread on the reddit credit card churning section where people post their approvals/denials for the card. IIRC, 26 out of 27 people who applied for the platinum were approved, and the one who was denied had serious problems with his credit report. Some had credit scores in the 600s.

Also, a lot of people were jumping on the public 100k offer for the Platinum a couple months ago and it seemed like everyone was getting approvals.

 

[AznAnarchy99]

I saw a thread on the reddit credit card churning section where people post their approvals/denials for the card. IIRC, 26 out of 27 people who applied for the platinum were approved, and the one who was denied had serious problems with his credit report. Some had credit scores in the 600s.

Also, a lot of people were jumping on the public 100k offer for the Platinum a couple months ago and it seemed like everyone was getting approvals.

https://docs.google.com/spreadsheet...bbzFUqsGhWcPpYxwWj_z3JG0w/edit#gid=1263163621

Most are in the 700s and I wouldn't say that's a good sample size since most of the churning community has good credit and income otherwise they wouldn't be churning.

 

[Sooon]

https://docs.google.com/spreadsheet...bbzFUqsGhWcPpYxwWj_z3JG0w/edit#gid=1263163621

Most are in the 700s and I wouldn't say that's a good sample size since most of the churning community has good credit and income otherwise they wouldn't be churning.

On the same spreadsheet the Amex Everyday card has at least some denials, and that's one of their most basic cards. And it seems like the only people who didn't get an instant approval on the Platinum were the ones who had multiple credit card applications recently where they had to verify it wasn't a case of identity theft.

 

[s0me0nesmind1]

I wonder if I qualify for "churning". It seems like every few months I grab a new one for a sign-on, but it's by no means multiple at the same time.

Nor am I going to try to do multiple at the same time by doing things like buying gift cards. Fuck that... trying to manage gift cards and their balances all that crap. I just casually spend the $1k - $3k sign on bonus requirement within the first 3 months and then keep it open. If it's an annual fee card I cancel right at the next annual fee. If it's not an annual fee I just keep it open.

 

[feralkid]

Some airlines have gone under due to credit card fees breaking their back.

Huh?

 

[s0me0nesmind1]

https://docs.google.com/spreadsheet...bbzFUqsGhWcPpYxwWj_z3JG0w/edit#gid=1263163621

Most are in the 700s and I wouldn't say that's a good sample size since most of the churning community has good credit and income otherwise they wouldn't be churning.

You know what I don't get about TPG? How he always advocates for the chase sapphire preferred. It's ~$100/year annual fee, and the only benefit is that the points can be transferred out to different partners (Different hotels, different airlines, etc...).

Why not... *gasp* just get fucking cash and use it as you please?

Don't get me wrong, I've heard miles in cash value could overall be better than straight cash-back, but the problem with things like Chase Sapphire is what a pain it is to EARN the rewards. You get a mere 2% (or 2 pts) for Airlines and Restaurants. There are plenty of times where my rotating 5% cards are for airlines, gas, amazon, restaurants, etc... So I can never justify the Sapphire. He must get a lot from Chase...

 

[AznAnarchy99]

I wonder if I qualify for "churning". It seems like every few months I grab a new one for a sign-on, but it's by no means multiple at the same time.

Nor am I going to try to do multiple at the same time by doing things like buying gift cards. Fuck that... trying to manage gift cards and their balances all that crap. I just casually spend the $1k - $3k sign on bonus requirement within the first 3 months and then keep it open. If it's an annual fee card I cancel right at the next annual fee. If it's not an annual fee I just keep it open.

I won't go out and do the whole gift card thing like most people on that subreddit. It was way too much work for a very minimal gain after the gift card fee. I just use my business for the minimum spends and cancel before the renewal hits.

 

[AznAnarchy99]

You know what I don't get about TPG? How he always advocates for the chase sapphire preferred. It's ~$100/year annual fee, and the only benefit is that the points can be transferred out to different partners (Different hotels, different airlines, etc...).

Why not... *gasp* just get fucking cash and use it as you please?

Don't get me wrong, I've heard miles in cash value could overall be better than straight cash-back, but the problem with things like Chase Sapphire is what a pain it is to EARN the rewards. You get a mere 2% (or 2 pts) for Airlines and Restaurants. There are plenty of times where my rotating 5% cards are for airlines, gas, amazon, restaurants, etc... So I can never justify the Sapphire. He must get a lot from Chase...

Chase pays him a lot I believe. I'm cancelling my CSP card before the renewal. The only thing I charge to it are my Uber expenses and it is definitely not enough to keep that card. I have 5% back on food/bars from my Citi card, my bills go on my Chase Ink Plus for 5x points, and everything else goes on my Amex with their customer service/protection.

I wouldn't pull those points out for cash back though. For example, I was able to get 3 cents/point by booking a room at the Hyatt for my upcoming trip.

 

[RadiclDreamer]

For those of us to spend everything on credit cards, and pay balance in full each month...
...how do the banks make money off of this segment?

They are providing a huge service, which I assume costs a lot of money to do... but get nothing in return.
I must be missing something.

I know a huge population carries balances, so they collect tons of interest and fees...
I guess I am underestimating this population.

Do they benefit from people who pay off each month?
Is there some sort of kickback from vendors, credit card processing, etc?

~2.5-5% off each transaction you make with it, then the morons that pay interest makes for quite a bit of dough

 

[ponyo]

Not if you have good benefits from said card. For example, I get $200 travel credit per year from AE Platinum then $100 credit for TSA Global Entry, then free entry to nice airport lounges, and other travel benefits. Also, I earned 100K MR points when I opened the AE Platinum card and sold them for over $1K, and on and on.

Of course, if you do not travel as much as I do, those benefits are not worth it to you.

Damn, AE Platinum had 100k signup offer? Why didn't you guys share? I would've signed up for 100k points.

 

[Jeff7]

CC companies make money from:

1. $ (from interest) from million and million of card users carrying balances. I read somewhere that the average US family is carrying about $7,500 USD (average) on their credit cards.
2. Fees from merchants to use CC.
3. Annual fees from CC users. For example, American Express Platinum card is $450/year. Other cards are $95/month or so. Not all cards have annual fee, of course. Cards from BoA, Citi, Capital One do not have annual fee for me.

Wow.

It's insane to me that people carry balances on their CC.

The interest rate is just insane. It's up there on the list of "worst ways to get loaned money."

Actually Credit Card companies have a name for cardholders who pay off their entire monthly balance every month ... deadbeats. This is because the card companies make little money off them. They'd rather you pay the minimum balance and even miss a few payments. That way they make 20 percent plus interest and some late fees off of you.

:sneaky:

I sometimes make payments before the due date if it happens to cross my mind.

They charge the places you use your credit card a percentage fee.

That is why there are a lot of small business's that are now only accepting cash. Sometimes when you buy a vacation package they will have a CC price and a Check/Cash price and it is lower. Some airlines have gone under due to credit card fees breaking their back.

This came up in another thread about this sort of thing: Several studies on the matter have shown that people who pay with credit cards are likely to spend 10-18% more than people paying with cash.


I tend to be.......I hesitate to use the word "cheapass" because I'll sometimes drop more money than necessary on computer upgrades and other very non-essential things, but, you know.....
So I hope I'm not terribly prone to do that, but I guess it's tough to properly evaluate that.
I also don't like having cash around because I feel like spending it just to get rid of it. (Or maybe take it to the bank to convert it into a more usable form.)