One of the issues that people have when using credit cards is the possibility that the account could be shut down in the event of good conduct — for example paying off the total credit card balance every month. If you’re always paying your balance on time then your credit card provider won’t be making any money from interest on you, are they?credit card company close my account
So, the bank that issued your credit card may prefer to see you carry an occasional balance however, in reality you’re still a valuable customer regardless of whether you carry a balancein fact, you still make the bank money. (And so long as you are able to earn money, they will not close accounts with credit cards!)
Credit Card companies Earn Money from Full-Balance Payments
If you’re making use of your credit card every month, you’re earning cash on behalf of the card’s company regardless of whether you pay off the balances. Why? Because the bank that issue your credit card doesn’t just earn revenue from interest charged to you. They also earn money from merchants who accept credit cards.
Each time you make a payment using credit card, your bank receives some money from an exchange fee. The store, gas station, or online retailer or even a medical professional who accepts credit cards will agree to receive a small amount of the transaction sent to the bank in order to reimburse the bank in processing your transaction.
If, for instance, you purchased $120 worth of groceries at your local grocery store The interchange charge for that purchase could be 1.5 percent which is $1.80. In this case the store retains $118.20 out of $120 they billed you for while the other $1.80 is the interchange cost which is divided between the processor of your card (Mastercard, Visa, etc.) as well as the bank that issues the credit card (Chase, Bank of America etc. ).
If you’re able to pay off your total balance every month, you’ll notice that merchants who issue your credit cards making money – they’re just not getting it from your wallet! (Although it’s easy to say that these interchange fees force retailers to raise prices a bit which creates a type of “invisible” cost to the consumer.)
But, Inactivity Often WILL Lead to a Credit Card Shutdown
In the present, while paying off your entire credit card balance each month is perfectly perfect (and highly suggested! ) What could trigger your credit card to be shut down is if you seldom or never make use of the card. We’ve already explained that the bank earns money off of the interchange charges however, they only earn these fees when you purchase something with the card. If you don’t make use of your card or even you only use it once every three months to make an amount of $10, it’s not earning them much profits. Sometime they may look at your account and think “We could earn more when we transferred the credit to another person who actually uses their credit card!”
Why are banks concerned that your credit card account remains in good standing even though you don’t use it? This isn’t costing them any money, is it? Yes and no. If the bank has offered you a credit line with the limit of $4000, but you never make use of it, it doesn’t directly harm the bank. But there’s always the possibility that you’ll be able to utilize it, which means they could be liable on their financial statements.
Banks typically want an upper limit on the amount of credit they can offer their customers in total. When they’ve reached their limit, they’ll have to find a option to offer new credit is to shut down some accounts that are not being used to make credit lines to be offered the new customer. If you’ve not been using your credit card, you’re one of the people who will receive the notice informing you that your account is shut down.
Good-Paying Customers Actually Help The Credit Card Company
We’ve said it before the credit card company may prefer you to have a balance to pay them interest, but there’s an additional benefit to them when a client makes full payments. In full payment of your balance is a sign that you’re a reliable customer and you’re not likely to default (walk off without paying the balance). Banks must have as many customers who are trustworthy as they can to offset the tiny percentage of customers who could fail to pay. If their defaults are excessively high, regulators from the government could force them to keep more reserves to cover potential losses and also ensure that the money that is in reserve isn’t used to help the bank make more money!
In other words, paying your balance in full is doing the bank an favor! Actually, it’s a bit. They’d prefer you pay a little interest every occasionally.