Simple Mile Life

What’s a Mile?

What’s a Mile?

Points and Miles were created by hotels and airlines,
so customers would be loyal to their brand. Every mile you flew would count as a mile you earned. Or every dollar you spent at a hotel would count as a point. After collecting a set amount of miles or points, you can redeem them for free airline flights or hotel stays. This allows frequent travelers to be rewarded for their loyalty.

Credit card companies have also seen the value of the Points and Miles that people earn.
Since credit card companies earn money each time their cards are used, they decided to also give their loyal customer rewards. And because each customer has the potential to be profitable for the credit card company accruing debt, and paying more for interest, the credit card companies are able to provide incentives to get more customers to sign up for their credit cards. This is why credit card companies want to offer great bonus offers.

However, not all credit card users accrue debt. In fact many individuals are able to pay their credit cards off on time, and pay no interest whatsoever. These are the individuals who can benefit a great deal from the Points and Miles credit cards and the bonuses that are offered. Anyone who currently has debt on their credit card should focus on paying the credit card off, since the value of Points and Miles is less than the interest they pay.

So people who can pay their bills on time can benefit a lot from the bonuses.

People who have credit card debt should NOT worry about collecting points and miles. The cost of the interest they pay on their credit card debt is much higher than the 1-10% return they can collect through having credit card bonuses.


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How can credit card companies earn money?

Credit card companies get more customers when they have sign up bonuses. But how can they make money when they give away so many points and miles? Here are a few of the ways they are able to earn so much.

Charging Fees

Credit Card companies make money whenever customers pay fees. Here are some of the fees that are more common among customers:
Some credit cards have an annual fee that is charged whether or not you use the credit card.
They also make money when you spend outside of your credit limit.
Another fee they charge is when you make a late payment.
There is also a fee for getting a cash advance – when you use your credit card to withdraw cash from an ATM.

Interest

Credit Card companies make money when customers do not pay their entire bill at once. They will earn interest on the money that the customer owes to them.
So while paying the minimum $25 fee is easier, the interest adds up and can cost the customer a lot of money.

Fees for Stores

Credit Card companies make money every time a customer uses their card.
This is actually paid by the merchant that accepts the credit card. It can be as low as 1% or as high as 4% of the transaction.

Commission

Some Credit Card companies also earn income by selling their client’s names to other credit card companies so they might have you as a customer as well. This does not happen often, but may explain why you get so many offers for credit cards in the mail.

These are some of the ways that credit card companies earn income. As you can see, the way the companies earn income is when consumers are not careful with their credit card spending, and use the card too often when they do not have enough money to pay off the bill. It is important to understand this is why credit card companies can offer such lucrative bonuses to attract new customers. The more customers they have, the easier it is to earn income.

Reference: http://www.frugalrules.com/how-do-credit-cards-make-money-hard/