How do Credit Card Companies Make their Money?

Have you ever wondered how credit card companies can afford to offer you cash rewards and airline miles and all the goodies that go with using their credit cards? When you compare credit cards and search for the best credit card, do you marvel at the 0% interest rate offers, and ponder how they can manage with people who pay their accounts in full without incurring any interest charges? If you've been wondering how credit card companies make their money, keep on reading.

1. Fees to customers are a large part of credit card company income. Annual fees, late fees, finance fees, transaction fees - they take a small bite out of your monthly income, but they're a large chunk of incoming cash for the issuing company. Consider that you are one of millions of customers who are paying those fees and you begin to see just how large that income can be.

2.Merchant fees are a second slice of the income pie. Each time you make a purchase on plastic, the merchant that made the sale to you pays a transaction and servicing fee to the credit card company. If you spend ?100 kitting out your kitchen at John Lewis, the store hands over ?2-3 to the issuing card's company as a processing fee. Why would they eat into their own profit margin that way?

- They sell more when they accept credit cards. - They get to reduce the handling of cash by store employees, cutting out one of their loss streams.-They're assured of getting their money if they accept a major credit card. With a store card, they assume the cost of collecting the debt - and wait months to get the full account.- They pass the expense on to the consumer in higher prices for everyone.

3.High interest rates rake in a lot of money.Anyone can tell you that the APR charged on most credit cards is considerably higher than interest fees on the same money from the banks. It's the price that we pay for convenience though, and credit cards ARE convenient.

4.They make investments with the money that they're using. Like the banks, the companies who issue plastic make a lot of their money by investing the difference between what they pay out to you and what you and merchants pay to them.

In other words, in a nutshell, the credit card companies are making their money from you - but their way of doing business means that they can account for someone who uses their product wisely.

Yes, there are ways that you can profit from their profit and popularity. The secret to actually profiting from charging your purchases is to compare credit cards before you choose, and to choose those that will cost you the least - or even put cash back in your pocket. For instance:

If you compare credit cards carefully you'll be able to find one with no annual fee and 2% discount on any purchases of petrol. Don't worry about the APR - you won't ever have to pay it. Apply for the best credit card online, and when you get it make all your petrol purchases using the card. Here's the trick - pay the full account on time every single month. You'll avoid paying the finance fees, and you'll save 2% on your petrol purchases every time you put petrol in the tank.

If you shop carefully and compare credit cards online, you'll find other ways to make your credit cards pay you back instead of you paying them.