How do credit card companies make money if you don't pay?

How Credit Card Companies Profit When You Don’t Pay

Credit card companies are for-profit entities, and they generate revenue through a variety of charges. One of the most significant sources of profit for credit card issuers is interest on unpaid balances.

Interest Charges

When you carry a balance on your credit card, you are charged interest on the unpaid amount. Interest rates on credit cards can be quite high, ranging from 15% to 25% or more. As a result, interest charges can quickly add up, especially if you only make minimum payments on your balance.

For example, if you have a balance of $1,000 on a credit card with a 20% interest rate, you will be charged $20 in interest per month. If you only make minimum payments of $25 per month, it will take you over 4 years to pay off the balance and you will end up paying over $480 in interest.

Additional Fees

In addition to interest charges, credit card companies can also charge a variety of other fees, such as:

• Late payment fees
• Annual maintenance fees
• International transaction fees
• Balance transfer fees
• Cash advance fees

These fees can quickly escalate the overall cost of borrowing. For example, if you miss a payment on your credit card, you may be charged a late payment fee of $25 or more. If you need to make a balance transfer, you may be charged a fee of 3% or more of the amount you transfer.

Consequences of Not Paying Your Credit Card Bill

If you don’t pay your credit card bill, you could face a number of consequences, including:

• Damaged credit score: Late payments and unpaid balances can damage your credit score, which can make it difficult to qualify for loans and credit in the future.
• Increased interest rates: If you have a history of late payments or unpaid balances, your credit card issuer may raise your interest rate.
• Collection actions: If you don’t pay your credit card bill for a long period of time, your creditor may turn your account over to a collection agency. This can lead to legal action and wage garnishment.

How to Avoid Paying Excessive Fees

The best way to avoid paying excessive fees on your credit card is to pay your bill on time and in full each month. If you can’t pay your bill in full, try to make at least the minimum payment due. By following these tips, you can help keep your credit card costs under control.