Wednesday, 20 May 2020

How Credit Card Companies Make Money - Find Out


How do credit card companies make their money, don't you want to know? I think naturally people like to assume that credit card companies make all their money from annual fees and interest rates, so the way that works is, if you get a certain card like the Platinum or the Chase Sapphire Reserve card, if you're paying a $400 to $500 annual fee and you do that to a couple thousand people then, they make a lot of money from that. People also think that every time you do not pay off your credit card in time and you pay them 20% that also compounds a lot, in reality, those are not the ways that credit card companies make their money, so how do they make that their money


Interchange Fee

Credit card companies make a lot of money from something called interchange, I personally like the way interchange works, but if you're someone that owns a small business it's definitely going to be a pain in the butt. What interchange basically is is that credit card companies charge a certain percent whenever you use your card and they charge that to the merchant. If I'm going down to the Korean bakery and I'm using my chase freedom unlimited card and say I spent $10 there, usually 2% to 3% of that fee is going to go straight to the merchant just for them to handle this transaction. This is where they make a majority of their money. Interchange is definitely one of the ways that they make a lot of money


Selling Your Information

Do you think about how these people have your information and they know how to prequalify you or send you any type of credit card information offers, a lot of these credit card companies sell our information once we get it to them, there are legal liabilities in terms of how much you can sell and how much data is given out, but for the most part, these companies are trading our information like it's a freaking professional Yugioh game. So most times when you get a credit card there's huge terms and conditions, there's a big privacy policy and in that privacy policy, it tells you that they have the right to sell your information unless you tell them, "please do not sell my information" but you need to understand they don't sell our information independently, they're not going to have Billy Jeong and Jimmy Jeong in three different categories, they sell them all in a bundle so they're not going to know exactly who they're sending to. whenever we get any type of offers it's going to be a massive sell-out.

For the most part, these credit card companies are profiting off of our data that we give them as well, you might think like hey, I don't like that, but in honesty, if you are in the credit card models and points game, then, for the most part, we are already coming out on top as long as you keep those interest rates down and you don't really carry a balance unless you're doing at no Apr business card and transaction, I'm not the one to advocate for people selling my data and getting me fliers and getting hit with Capital One offers that I know I'll never get, but honestly, it doesn't really bother me and if it gives me a better chance to get a better offer for a card in the future, I really don't mind it at all.

But here are the key points of all this, credit card issuers do make a lot of money off of us, but it's very easy for us to make money off of them as well, the way we can make money off of credit card issuers is just by paying off our bill on time, you don't pay interest on your cards it is literally simple as that, do not pay interest on your cards. yes, credit card issuers make a ton of money off of us and yes, it might not seem like it's right, but honestly, as consumers we get a ton of benefits and we're not losing out on anything, we might get a couple extra Flyers, small businesses may get charged a bit more, but in overall, the grand scheme of things if you're able to maximize your credit card points you still come out on top by a drastic amount, now, this completely changes if you don't pay off your balance in time. If you do a bunch of balance transfer cards without looking into promotional offers if you pay annual fees on cards but then you don't use the full benefit to it, then you start losing out on your own money, but for the most part, if you are smart with credit cards if you know how to use card cards effectively and if you're reading this article chances are you do, then you're completely fine.

I think it is always great to just have a little bit more perspective on the way things work, it definitely opened my eyes because I did not know why some merchants did not accept American Express, I didn't know why all the Asian restaurants in my area didn't want to take discover either, a lot of these smaller businesses don't want to pay that processing fee that's why they give a higher incentive especially at stations to, if you pay cash they are going to knock out a couple cents because they still come out on top and sometimes you do not have to tax it especially if you are like a smaller business.

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