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How Does The Credit Card Industry Make Its Money?

Having a credit card offers so much convenience, imagine you can just walk right into a store and point to that handbag and all you need to pull out is just your piece of precious plastic. You can say it's good, it's hassle free shopping, I can buy whatever my credit limit can handle, but wait until you see your credit statement and I don't think you can still put on that same smile you had when you're buying that handbag, I am pretty much sure of that. To those who are not aware where all these credit card companies are getting their money from to fund each and every one's credit cards. The answer to that is simple it's from nobody else, but from you.

Take a good look at your credit card statement, it should show there the amount that you need to pay equivalent to the amount of the bag you purchase for example, and then look further down… yes that's it "interest rates". Ironically speaking people are neglecting this simple question "how does the credit card industry make its money?" They tend to be too excited to go out and swipe away that card, ignoring the fact that the interest rates showing on their credit card statement is the same trap that would create the biggest burden in their financial life.

Let's go back to that question "how does the credit card company make its money?" Banks and other financial institutions who introduced credit card products are capitalizing on the idea to fund your material needs. Think of it this way, they will lend you hefty amounts through your credit card provided that you pay it back with added percentage of interest in exchange for the given opportunity of letting you use their money. Once you didn't comply with their rules you would be penalized and ask for more money from you in a form or late fees or over-limit charges. Since you are bound with a contract upon signing up, you don't have a choice, but to comply otherwise you would be facing legal actions initiated from the creditor's end.

Another reason why you need to strictly follow the terms of use is when you are consistently failing to make your payments, your interest rates and late fees, including penalties will keep on coming and accumulating every month. And when you reached the point that you can no longer keep up with the payment your personal life is beginning to come up in smoke. Possibly you would lose your credit score and a series financial hardship would follow eventually.

Basically, to answer the question how credit card companies make its money it is clear that financial institutions are making revenue from your failure to comply with repayments. Not to mention other source of revenues like annual fee, over-limit, past due, interest rates on your purchases and so on. You may not know it, but they make money by selling your name in the mailing list.

Jacklynn
At last, someone is trying to come up with the "right" answer! I have no frickin clue as to what the answer is. I guess like you say, "Trust No One!"
Jacklynn at at 01:27AM, 2011/09/02.

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