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In order to get approved for most credit cards, you need to have a good credit score. But why do the credit card companies want people with good credit scores (which indicate that you're more likely to pay bills on time), when they make the most money off of charging interest on late payments?

I can think of two possible reasons, but neither seems like a complete explanation...

1) They don't want to run the risk of people completely defaulting on debt - But it seems like the easy answer here is to approve people with medium credit scores (i.e., people who generally pay bills late, but won't default)

2) They need cash on hand to supply credit - But it seems like they could get this by having a balance of people who pay on time, with those who don't.

I understand that credit card companies can still make money in other ways, but my question is different: why do they actively seek people who pay their bills on time (as evidence by requiring good credit scores to get approved for a card), instead of they opposite?

  • It is better to have a return of your money than a return on your money. – Jack Swayze Sr Feb 9 '16 at 23:49
  • How do you know they want people with good credit scores? – JohnFx Feb 10 '16 at 1:37
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    @JohnFx Because they require a good credit score in order to be approved for most cards. Is this incorrect? – jamaicanworm Feb 10 '16 at 2:47
  • They require a not-bad score. They require a good score for the best rates. – JohnFx Feb 10 '16 at 19:40
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when they make the most money off of charging interest on late payments?

This is incorrect. Do you have any data to back this? In the past decade there was a tendency by financial institutions to make money from late payments and there were certain rewards / incentives for people who paid late. However the bubble cracked soon enough and there were huge losses in the card industry. Today most of the revenue for card companies is from margins on customers who pay on time and growth avenues are promoting to pay every transaction by card.

why do they actively seek people who pay their bills on time (as evidence by requiring good credit scores to get approved for a card), instead of they opposite?

As indicated above. Remember if one customer defaults it wipes out margins made by tons of customers.

In spite of giving credit to people with good credit score, the average credit card debit an US individual holds is still quite high.

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Lower risk of having to fight to get their money back, obviously. That's what credit rating is supposed to predict.

Paying your bills on time, and paying off the balance in full every month, are different questions. They want to know that you will make the minimum payments at least, and that you will eventually pay back the loan.

Compare that with subprime and/or loan sharks, where the assumption is that being late or defaulting is more common, and interest rates are truly obscene in order to make a profit despite that.

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They want people who continuously pay the minimum monthly payment on time not people who pay late. This is how they make their money, so a good credit score is important.

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    This is accurate, but they also make rather a lot of money on transaction fees. – ChrisInEdmonton Feb 10 '16 at 1:01

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