"good" credit card customer

[Anonymous]

I called my credit card company with a question, and at some point in the conversation the man on the other end said "You're obviously a very good customer, the kind we like to have-- you pay your balance in full every month."

I am a little confused. Since I do always pay the balance in full (and always have) I am not sure what the credit card company gets out of having me as a customer. (I also get one percent cash back, 1.5% on that card if I put it into retirement account.) I have no annual fee.

I always thought that the ideal customer from a credit card company perspective would be the customer who pays tons of interest (and eventually pays down the balance.)

I guess it's just the percentage they charge the vendors I'm using? How much of the sale do the people I pay by credit card lose to the credit card company? 3%?

[Anonymous]

Usually 3-4% Depending on the way the charge is made it could tack on another 1% or so. For instance, if the vendor needs to manually enter the card details.

[Anonymous]

Anonymous wrote:I called my credit card company with a question, and at some point in the conversation the man on the other end said "You're obviously a very good customer, the kind we like to have-- you pay your balance in full every month."

I am a little confused. Since I do always pay the balance in full (and always have) I am not sure what the credit card company gets out of having me as a customer. (I also get one percent cash back, 1.5% on that card if I put it into retirement account.) I have no annual fee.

I always thought that the ideal customer from a credit card company perspective would be the customer who pays tons of interest (and eventually pays down the balance.)

I guess it's just the percentage they charge the vendors I'm using? How much of the sale do the people I pay by credit card lose to the credit card company? 3%?

That's what we've done. Well, maybe not a ton of interest, but medium to a lot.

They call me a good customer too. I think largely because I've been with them many years and never given trouble. In the past few years I've probably been late (by a few days) on a payment 4 times. Every time they remove the fee when I ask, and twice they've offered to remove random finance charges. I think a lot also depends on who you speak with - are they nice? Tough day?

[Anonymous]

Customer who has been with them a long time = good customer. They just want to make you feel good about them.

[Anonymous]

good customer means you haven't missed a payment and have been with them a while.

[Anonymous]

Anonymous wrote:good customer means you haven't missed a payment and have been with them a while.

+1
OP you are reading way too much into this. Even if you were a "lousy customer" surely the wouldn't tell you.

[Anonymous]

Op here. I wasn't reading anything into it, really. Just wondering what the cc company gets out of our relationship when I pay no fee and get cash back. But I guess the answer is just the money they get from the places I use the card.

[Anonymous]

The interchange fees are complicated and vary by merchant type, if you do a card-present transaction or an online transaction etc, but basically the economics go something like this:

Your credit card makes a few percentage points on every $ you spend.
Out of that take the 1% you earn
Then take out another bit for overhead, IT, managing your account, the cost of mailing you stuff
Then take out the cost of fraud, people going delinquent etc
They make a few bucks on you

multiply by a few million customers

tada, money.

[Anonymous]

Anonymous wrote:I called my credit card company with a question, and at some point in the conversation the man on the other end said "You're obviously a very good customer, the kind we like to have-- you pay your balance in full every month."

I am a little confused. Since I do always pay the balance in full (and always have) I am not sure what the credit card company gets out of having me as a customer. (I also get one percent cash back, 1.5% on that card if I put it into retirement account.) I have no annual fee.

I always thought that the ideal customer from a credit card company perspective would be the customer who pays tons of interest (and eventually pays down the balance.)

I guess it's just the percentage they charge the vendors I'm using? How much of the sale do the people I pay by credit card lose to the credit card company? 3%?

They used to love the ones that accrued interest until people started filing for bankruptcy and then they don't get any money.
We always pay off our balance and they are always sending us cc offers in the mail. We usually make money off the credit cards (with cash back). No way would I ever give them my hard earned $.

[Anonymous]

I once asked the same question of someone I know who works for one of the major CC companies. She said there's some kind of ratio the companies need to maintain (forget specifically what, but something like the overall outlay of funds vs the amount of money owed to them) and the "pay off in full each month" people help them get the better ratios. If they are owed too much money, their company's standing gets downgraded or something like that.

[Anonymous]

Anonymous wrote:I once asked the same question of someone I know who works for one of the major CC companies. She said there's some kind of ratio the companies need to maintain (forget specifically what, but something like the overall outlay of funds vs the amount of money owed to them) and the "pay off in full each month" people help them get the better ratios. If they are owed too much money, their company's standing gets downgraded or something like that.

Pretty close, although it's a bit of an over simplified explanation. Credit card companies do make money off of people who pay in full, although less than those who carry a balance. But, as your friend alluded there are two or three benefits to this group of people, first, they are less likely to charge off in a downturn (so thy are lower risk) and help soften the fall when economies go south, second, because they tend to pay off in full, the amount of debt that has to be serviced is lower than it otherwise would be (this is similar to the ratio argument your friend makes) and finally the ratio argument: banks are required to keep a certain ratio of assets to liabilities - that's why you often see banks pushing you to open checking accts with your loans (and because obviously they make money there too). It isn't so much that you get downgraded if you don't meet the ratios - they are regulatory - so it's not a choice, it's more that your ability to expand your lending operations would be curtailed

[Anonymous]

The industry is changing post-Dodd-Frank and the Credit CARD Act of 2009. Fees were capped and fee harvester cards became less profitable. They still make more money per customer off no-pay-in-full customers, but not so much that it's the entire business model. Things actually are getting better for consumers thanks to the consumer protection legislation passed by Obama. For all the fuss about Obamacare, Dodd-Frank and the CARD Act are having a bigger positive impact right now for middle-class Americans.

[Anonymous]

Agreed with most others here

[Anonymous]

Anonymous wrote:Op here. I wasn't reading anything into it, really. Just wondering what the cc company gets out of our relationship when I pay no fee and get cash back. But I guess the answer is just the money they get from the places I use the card.

OP you should watch the documentary by Errol Morris called "Mr Debt". Its ALL about this idea of a "good customer" and what it _actually_ means to credit card companies. The documentary was part of a series on people who do interesting things for a living, and this one featured an attorney who figured out that by defending the legal rights of credit card consumers, he could negotiate them out of or reduce their debt and get paid a fee as a fraction of what they were paying the credit card company.

Its a remarkable little film that makes you really understand the sinister side of that phrase. Also, they are not making much off those merchant fees. In fact, they make SO MUCH MONEY off of interest and illegal late fees (or at least they used to make hands over fist in just that alone) from customers that they probably dont even need to collect merchant fees. Its a joke.

I am also a "good customer" but medical bills unpaid for by insurance alone have left me and others in enough debt to make up for in interest rates what the VERY SMALL PERCENTAGE of credit card customers who pay their bill of each month _dont_ pay in interest.

In other words, its not about you at all. But should you ever need to get ito debt because of unforeseen circumstances, and I hope you dont, you would instantly understand how this works.