Why Do Credit Card Companies Offer Rewards? It Makes Them Money!

• Transaction fees.
  Each time you use your card, the merchant pays the credit card company a fee equal to a percentage point or two. Even if you pay the debt down to zero in 25 to 30 days so you don’t have to pay interest expense, the issuer is still guaranteed a profit from the transaction fees. Wonder why do credit card companies offer rewards? This fee sure helps.
• Company loyalty.
  There are countless cards on the market, and if your credit is good to excellent, credit card companies know that you have the world of plastic open to you. A program where you get a lot of cool stuff can keep you a loyal (constantly charging) customer.
• Cheap things.
  Many rewards programs allow you to use your points for tangible items like electronics, jewelry, and things for the home. Those kitchen knives you order with the points may have a list value of $100, yet because the credit issuer has a relationship with the company, the wholesale value is half that – or less. This is not a bad thing for all involved, but you shouldn’t worry about the issuers losing money.
• Dormant points.
  And last, credit card companies know that many of their cardholders will never use all or even some of their points – so they won’t be out a dime. According to a study by the marketing firm Colloquy, just over a third of the 48 million already earned rewards points go unused. According to their calculations, that about $16 billion left on the credit issuers table.

Wonder why do credit card companies offer incentives? Now you know.
I have no quibble with a prosperous business. Hooray for making money! Now it’s your turn. Use your points well, shop smartly, and maintain a debt-free lifestyle. Do that and you’ll come out ahead financially, too.