You might wonder how credit card companies are able to offer 0% interest and rewards for using their cards. How do these companies make their money, especially if people are paying off their credit cards every month? Well, not everyone does pay off their bill every month and when you are paying back more than you borrowed, they are making a profit off the interest.

Companies charge fees and this provides the bulk of their income. Charging annual fees, late fees, finance fees and transaction fees will add up for you in the long run and make a good income for the company. When a company has millions of users with their cards, these fees will add up in a hurry.

These companies don’t just charge their consumers though; they have merchant fees as well. Every time a consumer purchases something from a store using their credit card the merchant pays a servicing and transaction fee to the issuer; usually around $5 or so. Merchants accept credit cards because they will make more sales if they do. It also cuts down on the amount of cash handled by the cashier as well as ensuring they will receive their money.

Of course there are high interest fees too. For those who don’t pay off their cards every month and that is a good chunk of the population; they are paying an additional amount on what they purchased. Interest rates can range from 8% - 25%, most people are in the higher range.

Credit card companies also invest using the money they are making. They use the difference between what they pay out to you and what merchants pay to them and use this to invest.

In essence, the credit card companies make their money using you and merchants. What you can do to pay less on credit cards is shop around and find one with the lowest interest rates possible. If you can, get a no annual fee card and only put add ons that are either free or ones you really need to keep your costs down. The best way is to pay off your card every month or at the very least, pay more than the minimum.