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How Credit Card Companies Make Money?

How Credit Card Companies Make Money? – I recently got a call from the credit card company, asking about a credit card. As I already have a credit card, I refused to avail a credit card. However, an executive from the credit card company was forcing me to avail credit card offer. I denied his proposal. After disconnecting the phone, I was wondering why we receive so many calls for selling credit cards. What is the benefit to credit card company? How credit card companies make money?

You may not be aware that credit card companies are making money by adopting various ways. Here are 10 ways used by credit card companies to make money.

credit card companies make money

10 Ways Credit Card Companies Make Money

#1 Interest Rate

Most of the credit card companies make money via interest rate. The interest rate charge is applied to the balance outstanding amount from month to month.

The interest rate varies from 3% to 4% monthly. This worked out to be 36% to 48% annually. This means if you skipped paying credit card dues you need to pay hefty interest amount.

So, make sure to check the interest rate while opting for the credit card. Also, pay your balance amount by the due date. This is to avoid interest payments.

Also Read – Balance Transfer Credit Card Facility – Usage & Benefits

#2 Joining and Annual Fees 

Joining and Annual Fees are fees that are charged by bank or credit card companies to maintain credit card account. This is another way credit card companies make money. Joining fee is onetime and annual fee is annual charge. Joining fee and annual fees are in range of Rs.500 to Rs.2500.

#3 Late Payment Charges

If you delay the payment you need to pay late payment charges. The late payment charges vary from bank to bank. It is charged on the outstanding amount. Late payment charge is one of the method how credit card companies make money from the customers. 

#4 Cash Withdrawal Charges 

Credit cards comes with cash withdrawal facility. This means you will be able to withdraw money using credit card at the ATM. The cash withdrawal using ATM is not free. You need to pay cash withdrawal charges. This charges are in the range of 2.5% to 3%. This is another way where credit card companies make money from the customers.

Suppose you withdraw Rs.20000 from ATM and cash withdrawal charges are 2.5%, then you need to pay Rs.500 as cash withdrawal charges. The fee charges from the date of withdrawal and applicable up to payment date.

#5 Foreign Currency Markup Charges 

You need to pay markup charges for foreign currency purchase. It is nothing but conversion fees for the foreign currency purchase. The charges are in range of 2.5% to 3.5%. This charges also depends on exchange rate on the day you made purchase.

#6 Over Limit Usage Fee

Few credit card companies allowed over usage. It is above your usage limit. If you over use your credit card limit you need to pay fee for over usage. It is generally Rs.500 or 2.5% of the over limit amount whichever is higher.

#7 Transaction Charges 

You may not be aware but credit card companies also make money via transaction charges. There are many places where you need to pay small percentage as transaction charges. This is generally charged on fuel, groceries as well as online shopping.

Last time when I have made transaction at fuel station I end up paying additional charges of 2%. 

#8 Statement Request Fee 

Nowadays all statement of credit card is sent via e-mail. However, few credit card company still send physical copy of statement at your mailing address. Suppose you have duplicate statement requirement you can get duplicate statement by paying money. This is another way how credit card companies make money from the customers.

#9 Balance Transfer Fee 

Suppose you want to transfer balance of one credit card to other credit card you need to pay fees for that. It is called as balance transfer fee. The fee for balance transfer varies from bank to bank. This fee is another way to make money via credit card companies.

#10 Card Reissuance Fee 

Suppose you have lost credit card or credit card is stolen or damaged, you need to pay money for card reissuance. The fee of card reissuance is between Rs.100 to Rs.500.

Over to You

I hope now you have got complete understanding about how credit card companies make money from the customers and why you get lot of calls from credit card companies.

Credit card charges and interest rates are a trap. You need to go through terms and conditions provided by credit card company carefully. Otherwise you will end up paying additional money to credit card companies.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.