As credit cards become the primary payment method for most people in the digital age, many are opting to dump physical currency. After all, it’s simpler to swipe plastic than to fish out the exact change from your wallet.
But do the benefits of paying by card outweigh the consequences? What do the credit card companies not want you to know, and how do they take advantage of you?
Why Would Credit Cards Issuers Offer Rewards?
We somehow take for granted that using our credit cards comes with all these benefits and absolutely no drawbacks. After all, they’re trying to turn a profit, not take a loss.
There must be some incentive for a company to offer you gifts for swiping your credit card. So what do they get in return?
1. Reward Mentality
In efforts to increase how often you swipe, credit card issuers offer you rewards for using it. You may receive cashback rewards, redeemable points, airline miles, or gift cards in exchange for using the card. It seems like a win-win situation, right?
Unfortunately, your brain may associate credit card spending with getting a reward and encourage overspending. That wouldn’t be the worst thing in the world if it ended there. But there’s more to credit card usage than merely encouraging bad spending habits.
2. Credit Card Processing Fees
Credit card issuers charge a processing fee every time you pay using their card. The processing fee that the credit card issuer receives will exceed the cost of whatever rewards you “earn.”
Unfortunately for you, some businesses don’t just suck it up and eat the costs. Unlike large corporations that can make up for these expenses with a higher volume of sales, small businesses can’t afford that luxury. Many are now fighting back.
3. Businesses Make You Pay The Fees
Instead of paying the credit card processing fee, small businesses may pass it on to you. Imagine my surprise when I was charged a 4% fee at a local restaurant to “earn” a mere 3% cashback.
If something sounds too good to be true, it probably is. But local businesses aren’t evil for doing this; they’re trying to make a living too. Before you pay with card, make sure that there’s no fee associated with using your credit card.
4. Credit Card Fees Are Built-In To Prices
While you may not see the added costs directly, owners often raise their prices to make up for credit card transaction fees (among other expenses). By increasing the upfront costs, there are no hard feelings about surprise fees tacked onto your purchase.
With these businesses, don’t feel bad about charging your card to get your rewards. Since the fee is already built-in to the prices, you might as well claim what you’ve already paid.
5. Businesses Discourage Credit Card Usage
Still, other companies will give you an incentive to pay with cash. Some even go as far as to impose a cash-only rule to avoid processing fees.
But I’ve seen restaurants with a generous 5% discount for using cash instead of credit. That’s probably more you’d save with your rewards card, so make sure to take advantage of this.
6. Processors Sell Your Credit Card History
Your credit card company may sell your transaction history to third-party advertisers. While some people will accept this as a cost of using the credit card, this invasion of privacy may do more harm than good.
When advertisers build your consumer profile, they may track things like what you buy, purchase size or frequency, and preferred shops. With enough data, they may even personalize prices for you and charge you extra.
Conclusion
When it comes to credit card companies, the house always wins. Using a credit card will ensure you pay more no matter what.
Every method the business covers processing expenses will increase your costs with a card. Make sure you get the best deal and use cash when possible.
If there are no incentives to pay with cash over your credit, go ahead and swipe to earn those points and rewards. Just be aware that your purchase data may still end up in the hands of other people who want your money.
Be smart about your purchases, and share this with someone who uses their credit card a lot. The next time you pull out your card, think twice before inserting the chip.
Sometimes cash still reigns supreme.
Back to top