i pay off my credit cards in full every month. do cc companies hate me or love me?

Page 2 - Seeking answers? Join the AnandTech community: where nearly half-a-million members share solutions and discuss the latest tech.

TallBill

Lifer
Apr 29, 2001
46,044
62
91
Originally posted by: daveshel
No credit card company has ever made a dime off of me. They still get a lot of transaction fees, and they never have spend anything on collections - I'm good for their cash flow.

Credit cards make money off of people who don't even have credit cards.
 

dullard

Elite Member
May 21, 2001
25,133
3,536
126
You are their favorite type of customer. Depending on where you shop, they make between $200 and $500 a year on you. And they make that nearly risk free since you always pay on time. Who wouldn't want that as a customer? Suppose there were 100 of you. Then they make $20,000 - $50,000 a year every year. The only way they'd like you more is if you paid off in full all the time, but you occasionally had to pay a ~$35 fee for some stupid mistake.

The credit card interest often doesn't cover the sum of (the cost to pay others to take the debt) + (the cost of the debts which are never paid back). It does depend on the year of course. In years when the economy is good, then they make money on interest. In years when the economy is bad they lose money on the interest side.

For example, suppose you were a credit card company and you had 100 people who each owe $10,000 at 20% interest. Then, you'd have $200k per year coming in. But, what if you don't have $1M to loan to these people, then you'd have to borrow that $1M so that you can give that to your customers (credit card companies don't have all that cash sitting around and they borrow their money too). Thus, you end up paying lets say $80,000 a year to borrow that $1M. Now, your interest net is only $120,000. But wait. These people often don't pay off their credit cards. Either they don't have the money or they die or they try to just benefit from your loss. In any given month about 1% of people become 90+ days behind. So lets say in a year 10 people don't pay their debt to you. Now, you just lost $100,000 of that $120,000. Your net on the interest portion dropped from $200k down to $20k. And this is in a good year. In a bad year if 15 people skip out on their debt to you, you just LOST $30k even though you were collecting 20% interest.

That doesn't even begin to consider the costs for collection agencies and other expenses for those in debt. But for people who pay it off in full, the costs are quite minimal. So which would you choose? Option 1: $20k to $50k coming in with minimal costs or Option 2: $20k to -$30k with high costs?

There is a reason that a credit card company bailout is on the horizon. It is much more difficult and costly for them to borrow money to loan it back out to people who don't pay their bills right away. And, many more people skip out entirely on their bills.
 

FeuerFrei

Diamond Member
Mar 30, 2005
9,152
928
126
Originally posted by: TallBill
Originally posted by: FeuerFrei
I've been carrying a few grand balance for years.

Back in '03 I had $1500 in hand and could have paid off the card, but my car really needed painting so it got painted.

lol, no car needs painting :)

I'll be the judge of that. ;)
 

dakels

Platinum Member
Nov 20, 2002
2,809
2
0
Paying it on time helps your credit rating does it not? Does having a balance help your credit?
 

dullard

Elite Member
May 21, 2001
25,133
3,536
126
Originally posted by: dakels
Paying it on time helps your credit rating does it not? Does having a balance help your credit?
Paying on time helps your credit score.

Your credit report does NOT include any information regarding how MUCH of it you paid on time. It does not say if you paid it in full or if you paid it in part. All it says is that at least the minimum payment was paid in full. Thus, having a balance cannot possibly have any effect on your credit score.
 
Jul 10, 2007
12,050
3
0
Originally posted by: dullard
You are their favorite type of customer. Depending on where you shop, they make between $200 and $500 a year on you. And they make that nearly risk free since you always pay on time. Who wouldn't want that as a customer? Suppose there were 100 of you. Then they make $20,000 - $50,000 a year every year. The only way they'd like you more is if you paid off in full all the time, but you occasionally had to pay a ~$35 fee for some stupid mistake.

The credit card interest often doesn't cover the sum of (the cost to pay others to take the debt) + (the cost of the debts which are never paid back). It does depend on the year of course. In years when the economy is good, then they make money on interest. In years when the economy is bad they lose money on the interest side.

For example, suppose you were a credit card company and you had 100 people who each owe $10,000 at 20% interest. Then, you'd have $200k per year coming in. But, what if you don't have $1M to loan to these people, then you'd have to borrow that $1M so that you can give that to your customers (credit card companies don't have all that cash sitting around and they borrow their money too). Thus, you end up paying lets say $80,000 a year to borrow that $1M. Now, your interest net is only $120,000. But wait. These people often don't pay off their credit cards. Either they don't have the money or they die or they try to just benefit from your loss. In any given month about 1% of people become 90+ days behind. So lets say in a year 10 people don't pay their debt to you. Now, you just lost $100,000. Your net on the interest portion dropped from $200k down to $20k. And this is in a good year. In a bad year if 15 people skip out on their debt to you, you just LOST $30k even though you were collecting 20% interest.

That doesn't even begin to consider the costs for collection agencies and other expenses for those in debt. But for people who pay it off in full, the costs are quite minimal. So which would you choose? Option 1: $20k to $50k coming in with minimal costs or Option 2: $20k to -$30k with high costs?

There is a reason that a credit card company bailout is on the horizon. It is much more difficult and costly for them to borrow money to loan it back out to people who don't pay their bills right away. And, many more people skip out entirely on their bills.

good info :thumbsup:
 

CRXican

Diamond Member
Jun 9, 2004
9,062
1
0
Originally posted by: TallBill
Originally posted by: FeuerFrei
I've been carrying a few grand balance for years.

Back in '03 I had $1500 in hand and could have paid off the card, but my car really needed painting so it got painted.

lol, no car needs painting :)

mine sure does
 

acheron

Diamond Member
May 27, 2008
3,171
2
81
Originally posted by: dullard
Originally posted by: dakels
Paying it on time helps your credit rating does it not? Does having a balance help your credit?
Paying on time helps your credit score.

Your credit report does NOT include any information regarding how MUCH of it you paid on time. It does not say if you paid it in full or if you paid it in part. All it says is that at least the minimum payment was paid in full. Thus, having a balance cannot possibly have any effect on your credit score.

Whenever I've gotten my credit report, it shows a "current" balance (for some values of "current" -- usually it's a few weeks old, whenever they got the information from the CC bank last). So it doesn't matter if you carried a balance a few months ago, but it does matter if you have a balance at the moment. (Don't know how much it matters, but the information is there.)
 

dullard

Elite Member
May 21, 2001
25,133
3,536
126
Originally posted by: acheron
Whenever I've gotten my credit report, it shows a "current" balance (for some values of "current" -- usually it's a few weeks old, whenever they got the information from the CC bank last). So it doesn't matter if you carried a balance a few months ago, but it does matter if you have a balance at the moment. (Don't know how much it matters, but the information is there.)
That is another topic. You can pay in full and have a current balance. You can pay in part and have a current balance. You can not pay and have a current balance. A current balance has nothing to do with what I was talking about.

It is rare to have a $0 current balance on a credit card that you use, even if you do pay in full. Why? Because by the time your check clears, you have probably already made a purchase for the next month.

To maximize your credit score, you need to have a current balance on a few different types of credit. You also need a $0 current balance on at least one type of credit. That means that you have to show both (a) you use your credit and (b) you have plenty of credit to spare in case of emergencies. That combination is exactly what businesses want to see when they ask for your credit score. But I repeat, having a current balance has nothing at all to do with paying in full.
 

Baked

Lifer
Dec 28, 2004
36,152
17
81
I've been doing paperless statement since they started offering it. I get an email reminder each month when the statement is up, I login to my CC webpages and pay off the amount due for current statement period. I don't payoff the total balance. Have only 3 CCs from 3 different companies. I make sure I use each card once a month, be it grocery, gas, or online shopping, and I always pay them off on time. I think AMEX increased my limit by $3K this year, same thing w/ Citi.
 

mugs

Lifer
Apr 29, 2003
48,924
45
91
If you spend $1000 a month and they take a 2% fee on each purchase, they're making $20/month off you. That's $240/year. If your purchases are spread evenly through the month, your average daily balance is $500. They made $240 off $500 in one year, less expenses for handling the transactions. I don't know, do you think they love you or hate you?

The guy who's carrying a balance of $1000 at 20% and never charges anything will earn then $200, and he tied up $1000 continuously.
 
Jul 10, 2007
12,050
3
0
Originally posted by: dullard
It is much more difficult and costly for them to borrow money to loan it back out to people who don't pay their bills right away. And, many more people skip out entirely on their bills.

[/quote]

this is just something that i can't comprehend... not paying a bill entirely.
it's like an urban legend to me, that this actually happens with other people, the lack of responsibility.
 

Injury

Lifer
Jul 19, 2004
13,066
2
0
Originally posted by: FeuerFrei
I've been carrying a few grand balance for years.

Back in '03 I had $1500 in hand and could have paid off the card, but my car really needed painting so it got painted.

Right, so the paint job has figuratively cost you $3000... considering the extra interest you've racked up since then.
 

Injury

Lifer
Jul 19, 2004
13,066
2
0
Oh, and I pay mine off every month unless I make a large purchase, then I split that purchase up between two or three months to cushion the blow.
 

dullard

Elite Member
May 21, 2001
25,133
3,536
126
Originally posted by: mugs
If you spend $1000 a month and they take a 2% fee on each purchase, they're making $20/month off you. That's $240/year. If your purchases are spread evenly through the month, your average daily balance is $500. They made $240 off $500 in one year, less expenses for handling the transactions. I don't know, do you think they love you or hate you?

The guy who's carrying a balance of $1000 at 20% and never charges anything will earn then $200, and he tied up $1000 continuously.
Thanks. You repeated what I said, but I think you said it better than I did. Sometimes I get too wordy.
 

Lithium381

Lifer
May 12, 2001
12,458
2
0
they used to hate it, cause they don't make as much $$ from you in interest and late fees and junk(they still charge retailers the 1-3% or whatever), but now you're their best friend, cause youre actually paying