Everyone loves credit card as they are very convenient to use. But the card companies love you more than anyone else. Because card issuer’s balance sheet is green (profitable) because of their customer’s who are not aware of the proper usage, terms and conditions and various hidden charges.
How Credit Card Companies Earn Money
There are two types of card users:
- Who are aware of all the charges and use it appropriately and make payments before the due date and have a good credit score.
- Then there are ones who just love swiping the card, cross the credit limit and frequently make minimum or late payments and do not care/think about its various credit card charges. And such categories of individuals are loved by the card companies as they bring in heavy profit for the companies.
So let’s understand the charges which heavy card users do not care about/are not aware of and makes companies love them:
- Late Payment: Card companies love individuals who frequently default the payments. This is because lenders earn good money by charging a very high late payment fee. Check out the effects of late payment and charges levied by prominent Indian banks. Even though banks offer minimum payment option but still it ultimately carries a high interest too.
- ATM Cash Withdrawal or Cash Advance: Higher interest rates are charged when card is used for withdrawing cash at the ATM of same or different bank. Since credit cards are not accepted at all merchants, card holders often make withdrawals at ATMs. Along with interest rate, a one time transaction fee is also charged.
- Exceed Card Limit: When you cross the credit card limit, it results in a penalty. And even if you cross the limit by let’s say Rs. 10, then also minimum fee which is Rs. 300 is charged. These charges vary for each bank and the card type.
- Notify card theft late: Credit card thefts are increasing. Although banks use latest technologies to protect their customers from frauds, many a times card owners do not follow basic preventive measures resulting in their credit card misuse generally in the form of card getting used above the credit limit. Although banks provide full support to such cases, they do not entertain card owners who do not inform banks on time due to ignorance or use card in unsecure environment or share their card details to scamsters.
- High annual fee card: Often people get e-mails/phone calls from card companies that they are being offered a new card with lots of benefits such as cash back, reward points, travel discounts and many more. But what they hide is that such cards carry high annual fee. Check out credit cards with no annual fee and high annual fee.
- Balance transfer fee: Multiple card users often balance transfer fee from one card to another. But what they do not realize is that banks levy a transfer fee which increases with the amount transferred.
- Using card abroad: Although it is a safest method (other than travel card) than carrying cash, using credit card in foreign country carries various charges such as currency conversion and foreign transaction fee. Cash advance is charged 1-2% higher compared to when card is used in the local country and it consists of cash withdrawal fee in addition to international cash withdrawal fee. Moreover, these charges vary for each bank. Read more on credit card charges when used abroad.