Why your credit card company offers rewards
Posted
Mar 31 2008, 08:54 PM
by
Karen Datko
Rating:
Your credit card company isn't giving you airline miles, points or cash back because it loves you. No, sirree. "New rewards, incentives, tricks, deals, dog-and-pony shows, and other marketing gimmicks are continually coming out with the aim to extract you from your money in the fastest, most pain-free way possible," writes Randall at Credit Withdrawal.
"Reminds me a little of Las Vegas," he adds.
Actually, there are several reasons, he writes.
Card issuers are competing for your business and want to keep it once you sign up. He says the companies spend $150 to $300 to attract each new customer, and will lose that money if the customer doesn't use the card.
They want you to keep spending. "Card companies would love for you to max out the card and pay over time (preferably at a high interest rate)," Randall says. "To this end, you get the incentives above" (plus those funny blank checks they send in the mail that carry an even higher interest rate).
They want you to use the card all the time. "By replacing cash with credit card use, the card companies get to charge the merchant fees for usage, sometimes as much as 3% to 4% of the purchase," Randall writes. "Of course, what no one sees is that those fees come back to the consumer through (invisibly) increased prices."
Randall loves getting the rewards, as long as he can pay the card balance each month. He writes: "I've seen pictures of all the wonderful huge buildings these companies have. If I'm paying for those through my spending habits, it only seems right that I should be reaping some of the benefits too."
