[Sonoma]

To be fair, there is a reasonable argument against credit in the sense that if EVERYONE was financially responsible, there would be no means for credit card companies to make money.

Someone above said something about people who pay their credit cards on time are subsidizing the others- it's really the other way around. If there wasn't some chump paying 29% interest on their card, then I wouldn't be able to get crazy credit cards that don't charge me any interest and give me 2% cash back on purchases and sign up bonuses etc

[Repo]

(12-13-2017 08:46 AM)Sonoma Wrote:  

To be fair, there is a reasonable argument against credit in the sense that if EVERYONE was financially responsible, there would be no means for credit card companies to make money.

Someone above said something about people who pay their credit cards on time are subsidizing the others- it's really the other way around. If there wasn't some chump paying 29% interest on their card, then I wouldn't be able to get crazy credit cards that don't charge me any interest and give me 2% cash back on purchases and sign up bonuses etc

Actually the rewards are paid by interchange.

[spokepoker]

What's interchange?

[Repo]

The percent of money that is charged merchants to accept credit cards. The banks as well as Mastercard/Visa split this fee, and banks typically give a small amount back to customers in the form of rewards.

[Sonoma]

I don't think interchange is as high as interest for credit cards income. If credit cards couldn't get people to have large balances they'd have to raise the interchange fee considerably, which would push a lot of retailers to either charge more, add fees for cards, or not accept cards altogether

https://www.nerdwallet.com/blog/credit-c...ies-money/

[Repo]

It's not. At the end of the day revenue is revenue, but in general interest revenue covers the defaulted debts, and interchange covers rewards. In Canada and UK, there is pressure to lower interchange, and as a result many banks are considering or have already lowered rewards. If this happens in the US, you can expect a similar result. It already happened with debit cards. Consumer loan portfolios is my area of expertise, it's what I do for work.