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I have a few credit cards that are currently carrying some larger "promotional" balances. These are purchases that I decided to put on a 6, 12, or 18 month 0% APR financing offer vs. taking any points or cash back offers. (Best Buy being my most used card of this type.) These are purchases such as a laptop or TV.

I always pay these purchases off in time (usually a month or two early). I have been told that by only making these 0% financing purchases on the card and never incurring interest is not recommended - that I may be putting myself at risk of the credit card issuer canceling my account since they aren't really making a profit off of me.

Is this true? Should I make some smaller purchases with these cards and incur some interest here and there, or is this simply not true?

  • 4
    If you make the minimum required payment on a credit card whose balance has items with different interest rates, then the payment can be (and almost always is) applied to the principal amount with the lowest interest rate. It is only when you pay more than the minimum required payment that the excess must (by law) be applied to the principal with the highest rate. This is a Gotcha! for people who accept a 0% balance transfer offer; if they continue to make the minimum payment, they reduce the 0% balance while interest accrues (and compounds) on their regular purchases. – Dilip Sarwate Feb 26 '15 at 3:22
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    I've had my oldest card for something over 25 years. I've only once paid interest (back in the days before on-line payments, I was in Britain and the postal workers went on strike), but they haven't cancelled it yet. I have several others, acquired since they started giving away free money (bonuses/0% interest) to sign up. Never paid a cent of interest on any of them, haven't had one cancelled yet. – jamesqf Feb 26 '15 at 3:25
  • 2
    I paid my balance on time each month for 10 years and the only reason my card was canceled was because I was not using it. I did not even know that the card was canceled till I checked my credit report. I have a good credit score 750+ as reported by Transunion. So I would not advise incurring interest just to keep your card active or to improve your credit score. Also many credit card companies charge a fee to the seller for using their services. So even though you might not be making them as much profit, it is worthwhile for them to keep you as a member. – user70926 Feb 26 '15 at 4:02
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    Short answer: simply not true. Don't let anyone tell you otherwise. – Jay Feb 26 '15 at 18:54
  • 1
    If they do cancel it, take your business to another issuer :) – Navin Feb 28 '15 at 3:19

11 Answers 11

45

While technically true, a card issuer can cancel your card for almost any reason they want, it's highly unlikely they'll cancel it because you pay your bills!

There are many, many people out there that pay their bills in full every month without ever paying a cent in credit card interest. I wouldn't ever purposefully incur any interest on a credit card.

Related anecdote: I used to have a credit card that I only used for gas purchases because they gave 5% off for fuel. The issuer eventually discontinued the program (I assume because people like me took advantage of it.) So while they didn't cancel my card, the bonus eventually went away. I miss that card.

My conclusion: if you can take advantage of promotional rates, by all means, go for it. You don't owe them any favors. Enjoy it as long as it lasts.

  • 11
    Side note: those cards with 5% bonuses still exist, you know. For gas you could use the Sallie Mae MasterCard that gives you 5% on gas, groceries and books (including Amazon). Like you, I use it all the time for these and only these things. salliemae.com/credit-cards/sallie-mae-card – AxiomaticNexus Feb 26 '15 at 0:17
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    Maybe worth adding (as other answers have mentioned) that credit card companies make money off merchants in the form of transaction processing fees. So as long as you're charging items on the card, you're making the credit card company money. – Jay Feb 26 '15 at 18:55
  • 1
    Every card I've ever used (from several different issuers) offers a method to automatically pay the balance in full every month from a bank account. Sometimes this is more secret (have to call and ask) but recently it's usually an option right on the web site. It seems pretty weird to offer this so prominently and then cancel the account for using it. – mattdm Feb 27 '15 at 15:17
44

Remember, the card company gets a percentage at the time of purchase, as well as any interest you let them collect from you. Yes, they're still making a profit on our accounts, and they can always hope that at some point we'll run up a high enough bill to be willing to pay some interest.

They may kill completely inactive cards, since they need a bit of income to pay for processing the account. But if you're actively using it, they aren't very likely to tell you to go away (though they may change which plan(s) they offer you).

  • 2
    I've got a Capital One account that I haven't touched in at least three years, and don't even have an active card for (they cancelled my old card due to some risk of fraud or another, told me to ask for a new one, and I never did); but the account's still active, and I still get a $0 statement every month. So at least Cap One is happy to pay twenty cents a month for an inactive account... – Joe Feb 26 '15 at 3:22
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    "Yes, they call those of us who pay in full every month 'deadbeats' " ... citation needed? I have never heard of this. – Digital Chris Feb 26 '15 at 15:49
  • Heard on NPR several years ago; the misuse/jargon-use of the term amused so i retained it as trivia. I don''t have a solid citation handy; it may just have been a usage unique to the folks they interviewed. Not especially significant except to illustrate that they would prefer we gave them more money but generally will be ok with anything that brings in enough merchant fees to cover its tiny share of their costs. – keshlam Feb 26 '15 at 16:21
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    Cardholders who lapse into delinquency are called deadbeats. Cardholders who pay their statement balances every month are called transactors. The issuer makes money on their share of the merchant commission and discount rate, instead of on interest charged to the cardholder, as you might expect. Source: 10 years experience in the consumer credit industry. – mwp Feb 26 '15 at 16:28
  • I stand corrected then. Npr is more reliable than most news sources, but they can get it wrong too. – keshlam Feb 26 '15 at 21:50
14

Credit card companies are businesses. Businesses will make any decision that makes them money. So does it make them money to cancel your account?

  • Cancelling your card means they no longer receive the fee from the merchant when you make a purchase.
  • Cancelling your card means you will be less likely to get one of their cards in the future, meaning their competitors will be gaining any fees on your business.
  • Cancelling your card means when you really need it (you know, when you're in a bind where you won't be paying it off on time) their card won't be in your wallet to use.

It's a simple cost-benefit analysis: you having an account with them will probably give them some benefit for very little cost to them. The only real cost associated with an open account is someone who uses the card but doesn't pay, but they're pretty sure you won't be doing that.

  • Good points. Never thought about it that way. I do make quite a few purchases with them, so I'm sure they enjoy that. – Devin Feb 26 '15 at 18:48
  • CC companies make a great deal of money even if you pay interest, as long as you're an active user - at the very minimum, after covering all their transaction costs and risks they would still earn at least 0.5% of your turnover on that card from the interchange fee that they receive from the merchant/acquiring bank. – Peteris Feb 27 '15 at 15:25
  • @Peteris That's not always true. Normal rewards cards (not signature) have an interchange fee of 2%. If you are getting 2% cashback, the bank is not making a profit. – Navin Feb 28 '15 at 3:22
4

I would think it extremely unlikely that an issuer would cancel your card for having an ADB of approximately zero. The issuer charges the vendor that accepts a card a percentage of the transaction (usually up to ~3%, AMEX is generally higher) - so they are making money even if you carry no balance on your card (the specific language for various vendor-side (acceptor) credit card agreements boils down to "we are essentially giving you, the vendor, a short-term loan and you will pay us for it).

This why you see credit-card minimum purchase amounts at places like hot-dog stands - they're getting nailed on the percentage. This is also why, when given the choice between "Debit or Credit" for a particular card, I choose where to put the hit on the company I like less - the retailer or the bank.

4

Speaking from personal experience: I have had a credit card canceled for exactly this reason. It's happened to me three times, with two different providers (NatWest and Nationwide). After the third instance I stopped bothering to even carry a credit card.

It's worth noting that all three were "free" cards in the sense that I paid no flat fee or subscription to get the cards. The only way the issuer could make a profit on them was through interest. I was also not a frequent user, carrying the card for convenience more than anything else, although I did make purchases on all three.

So it's certainly a possibility. But I live in the UK and I'm guessing most of your other respondents do not. It may be a practice that's more common here than in the US. That might even explain the origin of the rumour.

  • 1
    I doubt very much that "the only way the issuer could make a profit on them was through interest" especially if there is no interest charged provided the full balance shown on each monthly statement is paid by the due date. This is the case in the US; UK cards may have different rules, e.g. interest is charged from the date the monthly statement is issued till the date it is paid off in full in which case it would make sense to pay off the full balance just before the monthly statement is issued. – Dilip Sarwate Feb 26 '15 at 16:25
  • @DilipSarwate Yes, that was a short sighted comment on my part. Not least because, as others have mentioned, issuers make money on the transactions. My point was to emphasize that under the rules of my card, by paying off interest right away, I never ended up paying more to the issuer than I did for the goods I purchased. – Matt Thrower Feb 26 '15 at 16:47
  • Sears Mastercard cancelled many accounts in the United States, shortly before Sears sold that credit card business. Sears might have been trying to sell the business based on (price per active account) * (number of remaining accounts), instead of (a lower price per account) * (original number of accounts). – Jasper Apr 27 '16 at 5:18
0

Technically, yes but, in practice, no.

I use a card for everything and pay it off every month. Sometimes, several times a month depending on how the month is going. In the last 10 years, I've paid a total of $8 in interest because I legitimately forgot to pay my balance before the statement came out when I was out of town. I wasn't late, I just didn't beat the statement and had a small interest charge that I couldn't successfully argue off.

In the same time period, I've had one card cancelled at the banks request. The reason was that I hadn't used it in two years so they cancelled me.

I never pay annual fees, I get cards with great rewards programs and I (almost) never pay interest. If your bank cancels your card because you're too responsible, find a better bank.

0

When you buy something with your credit card, the store pays a fee to the credit card company, typically a base fee of 15 to 50 cents plus 2 to 3% of the purchase. At least, that's what it was a few years back when I had a tiny business and I wanted to accept credit cards. Big chain stores pay less because they are "buying in bulk" and have negotiating power. Just because you aren't paying interest doesn't mean the credit card company isn't making money off of you. In fact if you pay your monthly bill promptly, they're probably making MORE off of you, because they're collecting 2 or 3% for a month or less, instead of the 1 to 2% per month that they can charge in interest.

The only situation I know where you can get money from a credit card company for free is when they offer "convenience checks" or a balance transfer with no up-front fee. I get such an offer every now and then. I presume the credit card company does that for the same reason that stores give out free samples: they hope that if you try the card, you'll continue using it. To them, it's a marketing cost, no different than the cost of putting an ad on television.

0

No, they won't cancel it because you pay your card on time. When a company offers a promotion like that they are banking on making money on average, not in every case. On average including all the benefits including transaction fees, deals for partnering with best buy, etc. Of course some people pay their credit card in full each month and never incur interest charges. However, credit card companies more than cover that with other people who aren't responsible. If it wasn't worth while they would end the card program or change it.

-1

Credit card merchant fees are $0.15 - $0.40 per transaction plus 1.5-4% of the amount charged. Card issuers are competing to get to be the card in your pocket that you use on a daily basis.

If you were a card issuer, wouldn't you like to get 1.5-4% of every transaction I make for the rest of my life?

As a side note, ever since I became a business owner and saw how much we are all paying for credit card merchant fees, I've patronized a lot more cash-only businesses. The best ones pass the savings directly on to the consumer.

-1

Some years ago a call center operator told me a bit more than they probably should have.

They like to see a lot of money go through the card, but very little staying on the card. Yes, they make money on the interest but one card defaulting blows away the profit on a lot of other cards. The 3% take from the merchants is both reliable and up-front, not 6 months down the line when (and if) you pay the interest.

So if you want to make your credit card company happy, pay your bills in full every month. I have credit far beyond my actual means because I run work expenses on my personal card, I was told they didn't care (and had already guessed) that it wasn't my money. The point was I was handling things in a way they liked. Not quite at Palladium status, but cards with $200 annual fees are mine for the asking, and I haven't paid interest since the early 1990's.

-2

I've got a card that I've had for about 25 years now. The only time they charged me interest I showed it was their goof (the automatic payment failed because of their mistake) and they haven't cancelled it. No annual fee, a bit of cash back.

The only cards I've ever had an issuer close are ones I didn't use.

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