It is self-evident that credit card issuers (like in any other business) tend to get more and more clients. That's why they constantly create new cards in order to satisfy various wishes. Responsible entrepreneur always worries about his or her consumers. But in fact it is all about making profit. Did you ever think how do they make this profit? If you are not aware of such matters, this information may be significant and helpful for you: As a rule, all credit companies (with no exception) like Discover, American Express or Capital One get income by means of merchant fees, annual fees and various additional financial charges. I think you may remember those days when credit cards charged an annual fee for their service. Nowadays such practice is abandoned and vast majority of the cards has no annual fee. Of course, there are some exceptions, e.g. elite cards for wealthy people. Such clients are fond of spending money as the sign of their prestige. Merchant fee is something widely accepted as the standard payment. It is used in negotiations between credit organizations and their merchants. Regular credit card's usage gives the highest income. Issuers make money by different charges (e.g. when clients have late balance payments). Today credit lenders have found even more ways to make a greater profit:
- Grace period shortage. Recently this period was around 30 and even 60 days. By now it's reduced and usually is about 20 days! Such period is especially useful, because it is the sole time when you can make your purchases with no additional interest, but usual balance payments. So, if your grace period is shortened then you have lesser possibilities to deal with your balance, because you can get undesirable financial changes in case of your carelessness .
- The practice of monthly periodic rate has gone to nowhere and today companies prefer to use daily periodic rate to determine your balance charges. Lately your APR could be divided by 12 (number of months) and then it worked. Not now! Today's lenders work with daily rate frequency. This means that your APR is divided into three hundred sixty five pieces and then multiplied on the basis of average daily expenditures. It's clear that due to the effect of capitalization your charges become higher again.
- However there are some positive features. E.g. not so long ago lenders could increase your APR for one account in case of pending on another one. Thanks to FICO's work such practice is recommended to prohibit.
- Last but not least: credit card companies "admire" to use late fees whenever it's possible. Of course you can easily deal with them, just try to be attentive.
