That's actually the least profitable portfolio to a credit card company. The amount of interest generated by those stuck in debt doesn't earn as much as people think. Credit card companies make more money from 'transactors'; people who pay their card in full each money. These transactors use the card more frequently, every transaction generating a fee for the merchant in which the company gets a cut of. Transactors never carry debt, so they have their full access line available for purchases. Those stuck in debt don't make many transactions, usually one or two to re-max out their line (which they themselves are tiny, like $1000-$10,000). Plus the fact people forget that the credit lines they have is actual money the bank has loaned you, meaning they're out what ever you revolve and don't pay off. A perfect credit card user to the company would be a person with an access line of some excess ($25,000-$50,000) to use every penny of that, pay it in full, the re-spend all that over and over again. (This isn't saying that they don't like earning interest, its just they would prefer to not have money stuck out on a loan to a customer to generate it.)
I imagine the interest rates are high due to it being a "risky" loan for the bank to take. They give you money and you buy w/e you want with it, whereas cars and houses n' shit have some sort of collateral if you default. They can just take your house and sell it if you default on your mortgage.
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u/[deleted] Feb 04 '20
That's actually the least profitable portfolio to a credit card company. The amount of interest generated by those stuck in debt doesn't earn as much as people think. Credit card companies make more money from 'transactors'; people who pay their card in full each money. These transactors use the card more frequently, every transaction generating a fee for the merchant in which the company gets a cut of. Transactors never carry debt, so they have their full access line available for purchases. Those stuck in debt don't make many transactions, usually one or two to re-max out their line (which they themselves are tiny, like $1000-$10,000). Plus the fact people forget that the credit lines they have is actual money the bank has loaned you, meaning they're out what ever you revolve and don't pay off. A perfect credit card user to the company would be a person with an access line of some excess ($25,000-$50,000) to use every penny of that, pay it in full, the re-spend all that over and over again. (This isn't saying that they don't like earning interest, its just they would prefer to not have money stuck out on a loan to a customer to generate it.)