Credit Card Companies

Because of the advances in technology and the push by the financial services industry, credit card companies are much larger in number than at any previous point in history. Because of the flexibility and security they provide to both the consumer and the merchant, credit card companies are becoming more and more common with each passing year. It is almost difficult to comprehend that only 40 years ago, credit cards were almost impossible to obtain. Not only were most merchants not able to process credit card transactions, the interest rates available almost made them not even worth using. With the amount of time it took just to get the card through lengthy, on-site, application processes, it is easy to see why only 16% of American households had credit cards in 1970. Today this number is over 70%. With interest rates still near record lows, credit cards will continue to be forceful tools to both consumers and sellers in the foreseeable future.

How Credit Card Companies Make Money

With each credit card issued, a balance amount maximum is predetermined. When consumers use their credit card, their balance grows and at the end of a 25-30 day billing cycle, a bill is mailed to the consumer's address on record. In the last few years, some monthly statements have even begun to be delivered via email and the internet. On each monthly statement are a minimum amount due and a full balance amount. Consumers have the choice of paying whatever amount they choose. For any amount paid under the full balance though, interest is charged to the account and then added to the next month's statement balance. In essence, credit card companies are consumer lending institutions that only make money when interest is paid. It is that simple. The majority of their profits come from the interest they make on consumer credit accounts.

By Jamie Ward