Sep 5, 2022
Things only experts know about Credit Card
If I have to say if credit is good for you, I would say, it will depend upon your knowledge about and your wealth.
This is not your typical blog about Credit Card, which is only recycled information spreading on the internet again and again. If you have read a book on credit for at least one time, then I already consider you a credit guru, but the thing is theoretical knowledge is uncomplicated and doesn’t require many struggles.
Real Struggle began when you start managing Credit Cards. Now I believe that you may already know about credit and if you have visited this blog then maybe you have a huge credit card debt, or you’re a clever person who wants to take financial education before taking a credit card.
So, I am not going to bore you with the fundamentals of credit or tell you why you shouldn’t have made that purchase or why you should not let that mistake happen to you again. I mean, what person who is in a bad situation wants to hear lecturing about what he shouldn’t have done in the past?
Credit is best served to those who don’t need it.
If I have to say if credit is good for you, I would say, it will depend upon your knowledge about and your wealth. You have heard many a time that the rich use credit cards for everything, well that is true. You know how they make money from Credit Card, they make money from reward points and discounts which credit card company offers.
Likewise, you may have thought about how credit card companies can be able to earn a profit if they give huge discounts and rewards points. You may be surprised to know that credit card companies earn Millions of Dollars in profit, be it any bank from any country.
Companies earn profit from the Destitute and Middle Class, not from the Privileged.
This is possible because of the middle class, which is more in number. Credit Card companies have this concept of giving credit to persons who are not that impoverished to be bankrupt or not too moneyed, who pay all their bills on time and are earns rewards almost every month. In both cases, banks will lose money. But in the case of the Middle Class, banks make authentic money.
A middle-class person is a person who has enough money to live a decent and happy lifestyle. Then comes Credit Companies with their ads all over running on Internet and Payment services applications and with their sweet-voiced call girls, telling them how they can earn money by spending credit.
This doesn’t end here, even financial influencers of YouTube University also recommend using Credit Card, and they also explain their risks too. But people only go to GaGa about the benefits of using Credit Card, so they stop thinking about its risks.
They go and spend more than they can afford and do the EMIs because of the lucrative cashback E-Commerce sites were offering. Now, here comes the financial model of Credit Card Companies.
You see, Credit Card companies get discounts from the seller of the product so that they can provide credit to the buyer and let him purchase the product. So what they do is transfer some benefit from the seller to the buyer in the form of Cashback, which makes EMIs more lucrative and makes the buyer feel that he can afford the product.
Now, here he brings home the product and enjoys it. A person with good enlightenment of credit will pay off debt because he knows all about penalty charges, bounce charges, and late fees.
In this model, Credit Card Companies earn the highest revenue because most people do EMIs on their purchases or simply convert their bills into EMIs which will incur typically 24% to 34% per annum.
These interest rates are the highest contributor in the financial statements of the Credit Card Company. Approximately 2% of people default on Credit Card, which will lead to increased interest rates compounded annually till he repays, and they will be suspended from taking any future loan from any bank of the company.
Himanshu Mayachh
My Website
