Amidst all the shouting of credit cardholders over how they are being fleeced by credit card companies, it is sometimes difficult to see that credit card companies themselves are suffering in the current credit card crisis.
Credit cardholders, both good and bad, have a huge effect on how a credit card company flourishes or flounders in the current economy. In the case of bad credit cardholders, the cause and effect are quite obvious to see. Bad credit cardholders cost credit card companies a lot when they do not pay off their debts. It can be said that credit card companies are covering themselves from risks by increasing interest rates for riskier borrowers. However, when the borrower ultimately fails to pay the debt, it becomes a write off for the company, a loss in their books.
The effect of good credit cardholders are a bit more subtle to see. Good credit cardholders, by definition are good at maintaining their credit. This means that these cardholders rarely, if they ever do, carry any balance on their credit lines. They are also smart spenders and are well-versed in how to “game” the credit card system so that they get the best benefits without the risk of incurring high debts.
A favorite practice among good credit cardholders is to maintain two or more credit cards while actually using only one credit card. The one or two extra cards are used mainly to keep their available credit up so that they can maintain a high credit score. Since credit card companies will cancel cards that don't have any activity on them, these cardholders will usually charge minimal amounts on these credit cards and pay them off completely every month. Maintaining a credit card this way can earn the credit card company very little while costing them a lot. Also, the one credit card that these credit cardholders are using constantly is, most probably the one with the best rewards offer. They will also be very punctual in paying any balances. This means that, while the credit company is spending on awards, they are earning little from interests.
When credit card companies lose profits, they will usually spread the cost around, increasing interest rates and other cost of service for their other customers. Bad and good credit cardholders are therefore a problem for both credit card companies and other credit cardholders because, by costing the companies more, they are inadvertently stifling the availability of credit for the average cardholder. Still, as credit cardholders get smarter about handling their credit and move further away from the traditional sources of profits for credit card companies, the companies themselves may have to look for a more profitable business model as the current one.