is there any reason not to have a negative balance on my credit card?

[Asher]

What are these "rewards"?

I get 1% back from every store, 2% back if I buy from a certain chain of stores (grocery stores mostly, and some Walmart type clone).

I've redeemed something like 2800 bucks over the past 6 years or so in rewards, without paying any fees (directly...).

[Uncle Sparky]

So... If I put $1000 actual credit on my credit card, will they pay me 19.5% interest?

[N35t0r]

A discount comes from the retailer at the point of sale. The 1% reward doesn't come that way.

And the credit card company gets the money they return to you from?

[Asher]

The money they charge the retailer.

We all indirectly pay for it anyway.

[Flubber]

So... If I put $1000 actual credit on my credit card, will they pay me 19.5% interest?

LOLOLOLOLOLOL


Are you willing to take say a 10% chance that they never give ANY of it back ????

[Flubber]

And the credit card company gets the money they return to you from?

I never cared much as long as I am not paying for it

I always assumed its a cost of "marketing" to get you to use their card instead of a different one and they get it back from ther people that actually pay credit card interest

[Al B. Sure!]

Yes, Flubber. It's a promotion, paid for by the card issuer, to make their cards more attractive and to encourage people to use it. There's so much misinformation in this thread it's saddening.

[Kuciwalker]

AS, you don't really have the big picture here.

Flubber, you are conflating two distinct yet (sadly) bundled services provided by credit cards - transactional and revolving credit. Rewards programs are the inevitable result of transactional credit offered by firms with monopsony power; they will be roughly equal to the profit from merchant fees. If firms did not have monopsony power, rewards would not be offered, except possibly on a time-limited basis as advertising.

[Jon Miller]

Another large benefit of credit cards is protection. I have heard of stories of companies accidentally charging multiple times for a service/etc. They fix the error, but sometimes not before your account gets overdrawn and gets penalized for purchases you made when you thought you had money in the account (which can be quite a bit).

A credit card just would not allow you to make the charge.

Additionally, credit cards call me/etc if they question a purchase. I have never had my bank do so.

Finally, when I have had a purchase on my credit card I didn't remember making, I called up the credit card company and they took it off.

JM

[Asher]

Credit Cards also usually give warranties.

[Flubber]

AS, you don't really have the big picture here.

Flubber, you are conflating two distinct yet (sadly) bundled services provided by credit cards - transactional and revolving credit. Rewards programs are the inevitable result of transactional credit offered by firms with monopsony power; they will be roughly equal to the profit from merchant fees. If firms did not have monopsony power, rewards would not be offered, except possibly on a time-limited basis as advertising.

Hadn't meant to do that abnd sorry if I wasn't precise-- I am well aware of the transactional fees-- it was the reason I expressed surprise when some restaurants offer 5% discounts for debit over credit card in another thread. I just didn't think those fees were a big enough incentive for the rewards programs. Hell some rewards programs probably cost as much as the transaction fees or at least a significant enough portion that there is no huge benefit of this side of things.

No I still think that the idea behind most rewards is marketing to get more users of their cards. The card companies can probably tell you quite explicitly what proportion of people carry a balance on their card, what proportion forget a payment and pay interest and even what proportion will actually spend more on their card to get to an reward. The interest these folks pay has to be the major payoff

[Kuciwalker]

Another large benefit of credit cards is protection. I have heard of stories of companies accidentally charging multiple times for a service/etc. They fix the error, but sometimes not before your account gets overdrawn and gets penalized for purchases you made when you thought you had money in the account (which can be quite a bit).

A credit card just would not allow you to make the charge.

Additionally, credit cards call me/etc if they question a purchase. I have never had my bank do so.

Finally, when I have had a purchase on my credit card I didn't remember making, I called up the credit card company and they took it off.

JM

Yes, yes, these are all ancillary reason for me to use a credit card, and I do use a credit card. What I was hoping to do was get all of these various and sundry benefits without actually being extended any credit.

[Kuciwalker]

Hadn't meant to do that abnd sorry if I wasn't precise-- I am well aware of the transactional fees-- it was the reason I expressed surprise when some restaurants offer 5% discounts for debit over credit card in another thread. I just didn't think those fees were a big enough incentive for the rewards programs. Hell some rewards programs probably cost as much as the transaction fees or at least a significant enough portion that there is no huge benefit of this side of things.

No I still think that the idea behind most rewards is marketing to get more users of their cards. The card companies can probably tell you quite explicitly what proportion of people carry a balance on their card, what proportion forget a payment and pay interest and even what proportion will actually spend more on their card to get to an reward. The interest these folks pay has to be the major payoff

Flubber: for a moment pretend that credit cards didn't allow you maintain a balance, so they had to be paid off in full each month (there are some cards like this). They would pretty much be debit cards with a very tiny amount of "credit" attached and some extra consumer protections; basically just a digital transaction mechanism. Merchants would and do pay a per-transaction fee for this. In the ordinary course of events, that fee would be directly passed on to consumers, net of the cost of the inconvenience of accepting cash. Consumers would pick the card with the lowest fee, and the service would be efficiently priced.

However, because there are only a few credit card companies and they are extremely large, they each have monopsony power. They are able to prevent merchants from passing on these fees, and require that consumers are charged the same price regardless of how they pay. Each firm will be able to raise the per-transaction fee much higher than otherwise. This fee is still passed on to consumers in some measure, but it's passed on to all consumers, even those that pay cash (or use a card that charges a lower fee). The fee will be raised to the point that the merchant would rather drop the card and charge lower prices (thus gaining more customers from those who are willing to pay cash) than raise prices to cover any further increase in fees.

This is a pretty inefficient market. However, absent actual collusion the market for credit cards themselves is still competitive. Firms can compete to some degree on quality of service, etc., but most importantly they can afford to rebate a portion of the merchant fee directly to consumers. It is relatively easy for consumers to shop around for the card offering the highest rebate. Thus the amount of the rebate will tend towards the entire amount of the fee in excess of the fee that would obtain if there were no monopsony power (which pretty much just covers costs). So if in our perfect competition world the fees would be 3%, and right now they are 7%, the rewards will tend towards 4%.

This makes cash increasingly unfavorable, which means merchants have to worry less about losing those customers (there will be fewer of them). And every firm has an incentive to raise its fees just a little above the other firms' and rebate most or all of that increase to their cardholders, attracting more customers. This takes time, but the whole process can pretty much just keep going and going.

The net effect is that the credit card companies end up as a way to organize extremely large groups of consumers to collectively blackmail all merchants to give them a discount (with all kinds of inefficiencies in implementation) relative to people paying cash.

The whole deal with revolving credit, where people actually maintain a balance, is just a completely different market that happens to be bundled up with this one, and it doesn't suffer this flaw of the arbitrarily growing fees that don't mean anything because they're rebated.

[Asher]

I think you're overthinking this.

[Uncle Sparky]

Another large benefit of credit cards is protection. I have heard of stories of companies accidentally charging multiple times for a service/etc. They fix the error, but sometimes not before your account gets overdrawn and gets penalized for purchases you made when you thought you had money in the account (which can be quite a bit).

A credit card just would not allow you to make the charge.

Additionally, credit cards call me/etc if they question a purchase. I have never had my bank do so.

Finally, when I have had a purchase on my credit card I didn't remember making, I called up the credit card company and they took it off.JM

I use a bank cc and have been phoned by my branch with questions about purchases... in both cases ones I did not make and didn't fit my spending patterns. My cc is tied in with my interact, but both my savings and investment accounts are 'off the grid' and cannot be reached with the cc or interact banking information.

In addition, I've lost my cc twice, and had it replaced with, in one case several hundred dollars worth of purchases made after my cc went missing removed from the account.

When I travel, I put additional restictions on my cards, for my protection, and back in the '90s actually through a couple of grand on my card before I travelled. I spent it within the billing period, but wonder if they would have given me any interest on a positive balance. In todays market, I like the idea of 19.5 - 22.5% interest payable to me.