By Adam Jusko, ProudMoney.com, firstname.lastname@example.org
One of the concerns people sometimes have with credit cards is that their account might be closed for good behavior — namely, paying off the full balance on their credit card each month. After all, if you’re always paying off your balance in full, the credit card company isn’t making any interest money off of you, right?
Well, the bank that issues your credit card might prefer if you carried a balance every so often, but in truth you are still a valuable customer to them even if you don’t — and you still make them money. (And as long as you make them money, they won’t close your credit card account!)
Credit Card Companies Do Make Money from Full-Balance Payers
As long as you are using your credit card each month, you are making money for the credit card company, even if you always pay off your balances. Why? Because the bank that issues your credit card doesn’t only make money from interest that is charged to you. They also make money from the merchants that accept your credit card.
Every time you pay with a credit card, the bank gets a little bit of money from what is called an interchange fee. The grocery store or gas station or online retailer or even medical doctor that accepts your credit card agrees to have a small percentage of that payment sent to the bank as a way to compensate the bank for processing the transaction.
For example, if you bought $120 of groceries from your local supermarket, the interchange fee on that purchase might be 1.5%, or $1.80. In that case, the supermarket gets to keep $118.20 of the $120 they charged you, and the other $1.80 is the interchange fee that gets split between the card processor (Mastercard, Visa, etc.) and the bank that issues your credit card (Chase, Bank of America, etc.).
So, even if you pay off your full balance each month, you can see that the credit card companies are still making money — it’s just not coming out of your pocket! (Although you could easily argue that those interchange fees cause merchants to slightly increase prices, creating a sort of “invisible” charge to the customer.)