What Are at Least Two Ways Credit Card Companies Make Money?

Credit card companies serve as financial intermediaries, connecting consumers with credit and facilitating transactions. They provide individuals with purchasing power, enabling them to make purchases, pay bills, and manage expenses. Credit card companies operate a business model designed to generate revenue from credit usage and payment processing.

Interest Charges

A primary revenue source for credit card companies stems from interest charges applied to outstanding balances. When cardholders do not pay their entire statement balance by the due date, interest begins to accrue on the remaining amount. The Annual Percentage Rate (APR) dictates the cost of borrowing, representing the yearly interest rate charged on the balance. This rate varies significantly based on factors such as the cardholder’s creditworthiness, the type of credit card, and prevailing market interest rates. For example, the average credit card APR was approximately 23.37% in August 2024, with rates for accounts accruing interest averaging around 21.95% as of February 2025.

Credit card accounts typically feature a “grace period,” a timeframe after the billing cycle closes during which cardholders can pay their balance in full without incurring interest charges. If any portion of the balance remains unpaid after this period, interest is applied. Cash advances usually do not offer a grace period, meaning interest begins accruing immediately from the transaction date, often at a higher APR, typically ranging from 17.99% to 29.99%. This ongoing interest on revolving balances is a consistent income stream for credit card issuers.

Cardholder Fees

Credit card companies also generate significant revenue through various fees charged directly to cardholders. An annual fee, for instance, is a yearly charge for the privilege of holding certain credit cards, particularly those offering premium rewards or benefits. These fees can range broadly, with averages between $94 and $157, though premium cards might carry annual fees upwards of $500. Not all cards have an annual fee, but for those that do, it contributes to the issuer’s profitability.

Late payment fees are assessed when a cardholder fails to make at least the minimum payment by the due date. The typical late fee is approximately $32, though this amount can vary. Cash advance fees are incurred when cardholders use their credit card to obtain cash, typically at an ATM or bank. These fees commonly range from 3% to 5% of the advanced amount, often with a minimum charge of around $10.

Additionally, balance transfer fees are charged when a cardholder moves debt from one credit card to another. This fee is usually a percentage of the transferred balance, often between 3% and 5%. Foreign transaction fees are applied to purchases made outside the United States or in a foreign currency, generally ranging from 1% to 3% of the transaction amount. These direct charges to cardholders collectively form a notable component of a credit card company’s revenue.

Merchant Transaction Fees

Credit card companies earn revenue from each transaction processed through their networks, primarily via merchant transaction fees. The most substantial portion of these fees is the interchange fee, also known as a swipe fee, which is paid by the merchant’s bank (the acquiring bank) to the cardholder’s bank (the issuing bank). These fees are set by card networks like Visa and Mastercard and vary based on factors such as the card type, transaction method, and the merchant’s industry. For example, Visa’s interchange fees can range from 1.15% plus $0.05 to 2.4% plus $0.10 per transaction, while Mastercard’s range is similar.

Merchants typically pay a “merchant discount rate” to their acquiring bank, which encompasses the interchange fee, network fees, and the acquiring bank’s own markup for processing the transaction. This merchant discount rate generally falls between 1.3% and 3.5% of the transaction value. Network fees, or assessment fees, are smaller charges paid to the card networks themselves for using their infrastructure, usually around 0.14% to 0.25% of the transaction. These fees represent a significant income stream for credit card companies, given the high volume of daily transactions.