how do credit card companies reward us by giving us cash backs and points when we buy things and they pay for it and then we pay them and we can also pay a portion of the amount on a monthly basis?
so the credit card is for free and it also gives is cash back .. what’s the trick behind that?
margie k
May 23, 2010 at 10:50 am
The trick is that they expect you to not pay your bill in full every month, whereby they charge exorbitant rates of interest on the unpaid portion. The trick for the card user is to pay off the bill every month in full and enjoy the card for free and rack up points ( by the way the points are minuscule in comparison to monies spent using the card).
Computer Guy
May 23, 2010 at 11:10 am
The trick is that you may be tempted to carry a balance on the credit card at interest rates worthy of a loan shark. That’s what pays for the “cash back” and the “points”.
Don’t fall into that trap.
Grandpa
Reena
May 23, 2010 at 11:51 am
You aren’t reading the contract right…
A cash rewards card… will give you small cash reward points for certain purchases you make. Your bill is in no way reduced.
The cash you earned shows up separate and you choose when you want to redeem that reward. Usually takes a long time and a lot of transactions to build up any decent cash back reward.
When you purchase something with your credit card that transaction will show up on your credit card statement and be added to the previous months balance.
They only want a very small amount from you every month (the minimum payment due) but that does very little to reduce the outstanding balance and you still owe the same amount if you keep sending them only their minimum payment due.
You are a constant source of income to them when you only pay the minimum payment because it does nothing to reduce your balance but you only send them the interest they charged you for the money you are borrowing…
If you pay off the whole balance due every month they can’t charge you interest and you are borrowing the money you use for 30 days free of interest. But you still need to pay it back, of course.
Going this route would give you a great advantage:
You only pay back what you borrowed, no interest is coming due and you gain your cash rewards from qualified transactions. (usually only a couple of pennies… but it does add up).
R T
May 23, 2010 at 12:00 pm
First, you don’t get the points / cash until the month after the charges are billed. If I charge something on my Discover Card in January, Due in February, I usually don’t see the cash back until March.
Second, the cards are not “free”. Merchants pay a percentage of every sale. This is called a “Merchant Fee”. Also, the majority of people don’t pay their accounts in full every month so the credit card company collects finance charges. If a person is late, they also get socked with a late fee on top of the finance charges. One late fee will pretty much wipe out any bonus one might earn.
So, the card company will give back a small portion of these fees as a “bonus”. Wow, such a deal! This is only a good deal if one is never late and always pays the account in full every month.
Knowledge
May 23, 2010 at 12:12 pm
on cash back cards they send you a check for the cash you have earn, with point cards they send you a list of companies that accept points which is just about every company out there, on miles cards most of them you could use them with every airline. check out http://www.fastcreditcardapprovals.com under reward cards
Bill K
May 23, 2010 at 12:41 pm
The card company makes money in 2 main ways:
1) They make interest from the card holder if he/she doesn’t pay the full balance.
2) Every time you make a purchase, the seller is required to pay a fee (which is larger than the reward that the credit card company gives back to you). This way, they make money, even though they give rewards to the card holder.
Is this what you are asking?