Do credit cards make money even though I pay my balance in full?

Question

Since they offer cash backs for purchases, and I always pay my bills in full. It would seem like they don't make money off me. But since they offer cash back i'm thinking that they do make money. Do they charge venders or stores or business a percentage when I use my credit card at their stores? So they keep like 5% let's say and give me 3% cash back. So they still earn 2%. Is that how it works? Or do they not make money when I always pay in full?

Answer 1

Yes, they do charge vendors a percentage on each transaction, so they make money that way.

And most people don't pay in full - trust me, the CC companies are making tons of money.  Don't lose sleep over them.

Answer 2

If you pay off your balance every month, the cc company does not make money. You can get a small % back just for using your credit card even though you pay it off every month. My sister has been doing that for years with discover. She uses her credid card to buy everything, gas, food, clothing, plane tickets etc. she always pays the balance off every month, and gets a small % back. She is not the kind of customer the credit card company wants because they are actually paying her to use the card even though they have never made a dime of interest from her.

Answer 3

of course!!!

Answer 4

They do charge stores a fee to use their cards.  Not sure how the cash back thing works, but if you pay the bill in full, you still pay a small interest charge or an annual fee, usually.

Answer 5

They get a percentage of each transaction.

Answer 6

Yes, because credit card companies charge fees when the card is used.

Answer 7

Your are correct that the credit card companies charge stores for processing your purchases. Your 5% - 3% = 2% profit example is exactly how it works. Since most people do not pay off the montly charges in full, the interest charged is further profit.  There are many other fees charged to merchants accepting credit cards as well- see attached link.

Answer 8

It depends. AmEx and Discover make money on fees that merchant pays them. With Visa and Master Card it is different - banks make money off interest, Visa and Master Card companies get merchant fees. So banks don't make money if you pay your balance in full, but don't worry - they'll make plenty of money off others who do. Paying your balance in full is the only right way to use the cards. Otherwise you pay too much in interest.

"But you must be aware that paying the ballance in full while saving you any interest charges does NOT help your credit score that much. "

This is totally and utterly wrong. It is a lot better for your score than keeping a balance. One part of the credit score is utilization - the lower the better. Credit cards report your average balance which, if you pay in full, only consist of the current month' purchases. They also report your credit line i.e. the amount of available credit. Since your balance is low, close to 0, than the ratio of debt to available balance is low. It also says "pays as agreed", even if you have 0 balance, so you get good credit both because you pay on time and because your utilization rate is low.

For the record - I've always paid my balance in full, for 20+ years, and I've always had excellent credit. I also check my credit report regularly, so I know what it says.

Answer 9

Yes they make money by various means.  First of all, they get a percentage of the sale (average 4%), then they charge a monthly fee for use of the equipment to process the charges.

On average most people carry a ballance every month so they make $ on the interest from the  card holder.  Some make $ by charging fees (over limit, late, membership, etc).

So in all, they make more than enough to give people a little bit of incenctive to  use their cards.  But you must be aware that paying the ballance in full while saving you any interest charges does NOT help your credit score that much.  Here is the reason for this.

Paying off the ballance in full every month on your credit card can negatively affect your credit score, . Suppose that you use your credit card to purchase gas, groceries, and everything else each month, always spending around $1,200 each month, but when the bill arrives, you pay the balance in full.

You would think this would earn you bonus points for staying out of debt and paying off the balance in full each month, but not when you consider how you look on paper. What is your credit card issuer reporting to your credit report each month -- the total amount you owe at the time of the report and that you pay on time, not the fact that you pay your balance in full each month. Therefore, on paper, it looks like you carry a $1,200 balance on your credit card and never pay it off.  And if your credit limit on the card is $3000 or less, then this will indicate you are always using more then 30% of available credit which is a no no as far as credit reports are concerned.

A much better idea would be to have 2 or 3 credit cards and rotate them, using one for a few months, then using another, so that your credit card company can report a zero balance every few months to the three credit reporting agencies which now will indicate that you are paying off the balances.

Hope this answers your question