How A Typical Credit Card Company Makes Money

Apart from high interest rates and expensive fees, credit card companies have several different and, well, sneaky means to make the most money they can off of you.  These might show up as a service fee here or an additional charge there, but for almost every credit card company out there, these tactics net them billions of dollars in profits every year.  The credit card industry is a monster and it is growing every year as can be seen in our credit card debt statistics section.

So just how does a credit card company make money?  The devil is in the details, or in other words, the fine print.  It is mind blowing but most people do not read the credit card agreement before they sign it.  In doing so, they often give the credit card company permission to do all sorts of sneaky things.

The following are a few of the ways that a typical credit card company makes extra money.  All of these, if present, can be found in the fine print of your credit card contract. 

You may not get what you asked for.

Doubtless, you have gotten mail offers from credit card companies offering really low rates. Signing up seems like a good deal.  However, the fine print allows the credit card company in question to send you a different card, with a different rate if you do not qualify for the special rate.  In other words, they lure you in with the low rate card but are not actually obligated to send you the credit card you applied for initially. 

 

Universal default.

Once you are signed up, a credit card company monitors your credit report for any lay payments.  If a late payment shows up on your credit report, regardless if it is from a utility or another credit card, your credit card company is allowed to raise your interest rate under the terms of universal default.  Last year, just under half of all credit card holders were subjected to some kind of universal default penalty. 

Usage fees.

In order for a credit card company to charge interest, you need to spend on a credit card and then carry a balance.  If you don't use your credit card, credit card companies cannot charge interest. So to encourage usage or to make up for lost interest, credit card companies have started charging fees -as high as $20 - for not using your credit card regularly.

 

Transfer over to us....

In an attempt to get new customers, credit card companies are offering to transfer your current debt over to their card at really attractive rates.  It sounds like a great idea.  You benefit from their low rates and the credit card company benefits by gaining a new client.  However, nothing is that simple in the world of credit card companies.  There is usually a transfer or transaction fee of less then 5%.  This means that on a credit card balance of $5 000, the 5% transfer fee would amount to $250.  The fee is supposed to cover the cost of paper work etc. However, it really is just another way that your credit card company can take you for more money. 

Late fees.

Life some times gets in the way of making payments on time.  While most people understand this, your average credit card company does not.  Currently, about %30 of credit card holders make the occasional late payment.  The penalty for making late payments is two fold.  First a credit card company is allowed to charge a fee for late payments usually around $15- $20 but as high as $40.  Second, after a couple of late payments, a credit card company is able to jack your interest rate as you become more of a liability for them. 
 

Crossing the line.

Every credit card (with a few exceptions) has a maximum limit.  If you spend more then the limit, a credit card company can charge you an over limit fee.  You may ask how you are able to spend more credit then your credit allows, buy you would surprised to learn that credit card companies can be very flexible when it comes to your limit.  The will allow a small amount overage- usually under $20 - to prevent any inconvenience and of course, to charge you the over limit fee.  You can also exceed your limit with any other additional fee levied against you by your credit card company.  In other words, if you are hit with a late fee, and it pushes you over your credit card limit, then you can also expect to be hit with an over-limit fee. 

If you would like to learn more about freeing yourself from the grip of your credit card company click the link below. 
 

Mastering your credit card company