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finance a la shmoop. how do credit card companies work? you could write a

book on this but don't. it'll hurt instead think about a credit card [man carries huge book and grimaces]

company is kind of twisted moneylender who really makes money in two ways.

well first they make money from the people who take your credit cards like

when you use your credit card to lovingly pay shmoop 20 bucks a month for our

awesome content. thank you very much. that $20 charge carries about a 1% hit. from

the credit card company that is the hard-working elves here at shmoop only

keep about nineteen dollars and 80 cents from that twenty you just paid. credit [equation]

card companies need to pay for their jets right? well that one transaction was

just 20 cents but there are gujilion's of them so the dough adds up to billions

and billions really fast. unless do you think the job of being a credit card

company is easy, note that every few thousand transactions is done by some

bad actor like no different kind of bad actor. you know meaning of theif someone

behaving badly they've stolen your card and if race to Best Buy [man runs out of store carrying TV]

hoping to abscond with ten flat screens to sell on the street corner and make a

fast buck. while the credit card company is generally responsible for those

frauds against mankind and have to hunt down the bad guys .so that's one way

they make money. the other way credit card companies get paid is that they get

money from consumers who use them either directly or indirectly directly. means

something like an annual fee. and then there are charges well you know that is

if you don't pay off your credit card bill each month you carry what is called [credit card rates listed]

a balance. and on those amounts you pay huge interest. like for many buyers on

credit the fee is 15 to 20 percent per year these days and sometimes more. so if

you bought a thousand dollar television set with your 20% credit card and didn't

pay it off for three years you'd have paid $200 a year in interest for three

years or $600. do you think Visa Mastercard or Amex pay 20% interest for

the money they borrow to lend to you? hardly they pay very very low interest

rates like just a few percent in there so on the [visa employees pictured]

20% they charge you an interest to punish you for not paying off your

credit card their cost is more like 2% I either making like an 18% spread or

profit margin on that money. the 600 bucks you paid for renting the grand for

3 years from the kindly loving people at visa

Oh made visa over 500 bucks on that money nice. work if you can get it and [equation]

you know a really nice jet.