Almost everyone out there has some experience with a credit card.  Unfortunately, some of us have been sucked into credit card companies’ business models of deception, luring customers into paying high interest rates and late fees. But while interest rates and late fees are key revenue sources for credit card companies, by and large, they’re not exactly predatory practices.

Businesses need to make money. It’s our job as consumers to understand the various incentives and disincentives of the products we use so we can make informed decisions about our own money, and whether a business’s services are worth what we pay for them. Consumers need to understand how these companies operate in order to use their credit cards conscientiously and avoid destructive behavioral spirals.

Let’s explore the facts behind how credit card companies make their money and how you can use this information to make smarter financial choices.



The revenue stream: When consumers pay for something using a credit card, they often assume that the retailer receives the entire payment. However, a small percentage of most credit card purchases (roughly 2% or more) gets gobbled up in credit card interchange fees. The bulk of that goes to the bank that issued the card used (for example, Chase or Capital One), while a portion also goes to the credit card association managing the account, such as Visa or MasterCard. (Those companies also charge their partner banks fees for their services, further adding to their revenue.)

Meanwhile, American Express issues its own cards and operates under a “closed-loop” network, meaning it acts as both the card issuer and the credit card association (as opposed to Visa or Mastercard). AmEx’s chief revenue stream is the fee it charges merchants who accept its cards, which account for a staggering 65% of the company’s revenue.

What this means for you: Interchange fees don’t really impact consumers as much as they do merchants, who receive only $97-$98 of a $100 credit card purchase. But even some very small businesses want to be able to accept credit cards to make it easier for their customers to make a purchase, so they are typically willing to pay credit card companies for their services.

While this may seem like an exploitative tactic, the credit card companies act as intermediaries for all parties involved in the transaction: issuing banks, cardholders, and merchants. They handle the complex behind-the-scenes components, including secure financial transfers and fraud monitoring, which is why they can demand these fees. As a consumer, of course, it means you don’t have to carry around a wad of cash or a checkbook to make purchases at most stores and restaurants.

What you can do about it: If you really want your local coffee shop to receive 100% of your purchase, then pay cash. One thing to keep in mind is that some retailers will add a 2%-3% surcharge on Visa and MasterCard transactions — which comprise 70% of all credit cards — to cover the interchange fees those companies charge. Luckily, merchants are required to disclose any credit card surcharges upfront and detail that extra fee on your receipt.

Keep a watchful eye out for surcharges when you pay with credit. Utility companies or government agencies such as the DMV will often add a surcharge if you use a credit card. I try to avoid using a card anywhere that adds this charge.


The revenue stream: While merchant fees make up a good portion of credit card companies’ revenue streams, they also collect fees from their cardholders — including annual, cash advance, balance transfer, and late fees.

For instance, let’s say you’d like to move your balance on one card to another with a lower interest rate. Most companies will levy a 3% balance transfer fee on your transaction — so if you want to transfer $5,000, you’ll have to pay $150 upfront.

What this means for you: Consumers who haven’t read the fine print are often shocked to discover the number of fees companies charge. Not only will they drive up your credit card bill, but incurring certain fees, like late fees, will damage your credit score, too. Keep in mind that fees can vary by card and issuer, so just because one company or one card doesn’t charge an annual fee, for example, that doesn’t mean another won’t.

What you can do about it: Make sure to find out whether there’s a fee and how much it is before you apply for a new card. Depending on your credit limit and the rewards program, that expense may outweigh the benefits.

Credit cards often come with a range of useful services such as balance transfer offers and cash advances. These can be incredibly helpful in a financial pinch, but they’re not without their costs. A cash advance might seem like the answer to your short-term money problems, but you could be paying that off for years. Talk to your credit card company about the charges, and look for alternative solutions that won’t cause you stress down the road.

If you plan to use a credit card while traveling overseas, research different companies’ foreign transaction fees. These can seriously increase your travel expenses if you’re not careful, so look for cards with low or no fees on international purchases.

Annual fees aren’t fun to pay, but they aren’t the enemy, either; some of the best rewards credit cards charge annual fees. Personally, I have about six credit cards that I use for specific purchases. When I’m deciding to open any new card, I always ask myself, “Does this offer a good return on investment?” A great rewards card might be worth a high annual fee if you use it enough.

Whatever your credit card situation — whether you pay your balances off each month or can only make the minimums for the time being — don’t ever make payments late. This is a careless consumer mistake that creditors make money off of, because they will charge late fees that can really add up on your total bill. It can also trigger an unwanted increase in your interest rate — which we’ll look at next.


The revenue stream: Interest payments undoubtedly provide credit card companies with handsome revenue — especially off of missed payments. A recent survey of 100 major U.S. credit cards found that consumers who fall two months behind on their credit card payments face an average penalty interest rate of 28.45%.

So let’s say you carry a $6,000 balance on your card charging 11.82% — the average APR. At the 28.42% penalty APR, you would have to pay nearly $1,000 extra in interest per year.

In 2014 alone, American Express made a net interest income of approximately $5.8 billion!

What this means for you: Because just a few missed payments can quickly spiral into serious debt, consumers often mistakenly assume that credit card companies want them to get in too deep. After all, that means more profits for the creditors, right?

In truth, while credit card companies do profit from the interest that accrues on overdue accounts, they don’t design their systems to trick customers. The more spending power cardholders have, the more money these businesses make, whether they carry high-interest balances or not. That’s why they provide cardholders with the options to set up automatic monthly payments and send out reminder notices ahead of their due dates.

What you can do about it: Set your account to send reminder alerts via text or email before your bill is due each month, and always pay your balance in full. And while credit card companies make it easy to pay, they can’t stop you from buying things you don’t need or can’t pay off. So every time you’re about to charge something to your credit card, ask yourself, “Can I pay this off on my next bill?”

If the answer is “no,” wait until you’re in a more comfortable financial position. Even a small purchase can quickly become a burden when you account for the interest over time. And paying the monthly minimums won’t help you once you’ve racked up enough interest on the debt. You also want to avoid maxing out your cards, because carrying high balances lowers your credit score.

Treat your credit cards like the finite amount of cash you carry in your wallet. In doing so, you won’t get sucked into the trap of buying more than you need — or can afford.


The revenue stream: Some credit card companies sell customers’ data to other businesses — particularly retailers that would like to garner better insights into consumer spending habits. Both American Express and MasterCard have profited off of this tactic. MasterCard sells data by ZIP code, which tells retailers what areas are more likely to make purchases. Then, online advertisers can take this data and create targeted advertisements.

What this means for you: Luckily, the data is anonymous and aggregated, meaning companies can’t single you out. However, many consumers aren’t happy to know that companies are profiting off of their personal information.

What you can do about it: This practice is, thankfully, on the decline. Make sure to read card agreements thoroughly to find out whether a specific company will profit off of your data and whether you can opt out. 


When used responsibly, credit cards offer numerous benefits. Whether you simply don’t like carrying cash or you’re trying to build credit history, they’re convenient and valuable tools.

But there’s something to be said about their ability to separate you from your money. It’s easy to get carried away with your credit lines and blame credit cards for capitalizing on fees while you’re one late payment away from the poor house.

Credit card companies are out to make money — there’s no doubt about that. But it’s important for consumers to understand how those businesses make money, and where their own responsibilities lie.

9 Common Myths About How Your Credit Score is Calculated

Under most scoring models, credit scores (also known as a FICO score) range from 300 to 850. The higher the number, the better a person’s credit – it implies that the person is a lower risk to a lender.

The score is calculated using a credit report that gathers data on your current and past debt and whether you pay the debts on time.

Besides determining whether or not you are approved for a loan, your credit score can determine the interest rate you will pay.

Following are many myths that people tend to believe about their scores.

Myth 1: The Credit Bureaus Decide Whether I Get a Loan

The three credit bureaus, Experian, Equifax, and Transunion generate credit reports – but they don’t evaluate your credit score or advise lenders whether to approve or deny a loan. The bureaus simply layout the facts about your credit history – like whether you pay your debts on time. Your actual credit “score” or “rating” is calculated by companies like FICO and VantageScore Solutions, however, these credit bureaus do evaluate your credit risk level based on your credit report.

Myth 2: There’s Only One Type of Credit Score

There are actually many different scores. For example, FICO has several models with varying score ranges that a lender can use. Thus, the FICO score attained by one lender may not be the same score received by another. If a lender declines your application or charges you a higher interest rate because of your score, determine what in your credit history may be negatively impacting your score and work towards resolving those issues. You can request a free copy of your credit report every 12 months from each of the three credit bureaus.

Myth 3: If I Close a Credit Card, its Age is No Longer Factored into My Credit Score

If you’ve got a card that has always been in good standing on your credit report, it might be best to leave it open. As long as the card remains on a credit report, the credit scoring system will continue to see it and still consider the card in the scoring metric—regardless of its age or standing.

Myth 4: A Credit Card Stops Aging the Day I Close it

Even after an account is closed, a credit card will continue to age and will continue to affect your credit score – whether your account was in good standing or not. However, a closed account will not remain on your credit report forever. The credit bureaus will delete them after 10 years if the account was in good standing, and after 7 years if the account had a damaging history.

Myth 5: I Need to Carry Debt to Build Credit

Not necessarily. It’s all about balance. Making minimum payments and maxing out your credit cards is detrimental to your credit score. It’s also a fast-track to needing credit card help. You’re better off having credit cards that are no more than 30% full to show that you can have credit without using it.

Myth 6: Medical Debt is Treated Differently on Credit Reports

Typically, medical bills aren’t reported to a bureau unless the bills are sent to a collection agency. But if the medical bills are reported, credit bureaus treat them the same as other debts. The more recent they are, the more they can affect your credit score.

Myth 7: A Credit Repair Company can only Remove Inaccuracies on My Credit Report

Credit Repair Companies can help provide advice and assistance in reporting inaccurate information on a person’s credit report. If information on a credit report is negative, but accurate, it’ll take at least 7 years to be removed, no matter how good the Credit Repair company is

Myth 8: My (Credit) Utilization Ratio Doesn’t Matter

Simply put, your credit utilization is the percentage of your available credit that you’ve actually borrowed. (For instance, if your credit card has a limit of $1,000 and you have $250 charged on it, your utilization ratio is $250 out of $1,000, or 25%.)

This ration is a very important piece of the credit scoring system and can seriously affect your credit score in a short period of time – for better or worse. The credit score tracking website recommends that consumers shouldn’t exceed utilizing 30% of their available credit. If all your cards are maxed out, you should look into how to pay off credit cards immediately.

Myth 9: I Should Avoid Getting Store Credit Cards Because They’ll Hurt My Score

As long as you use a store credit card responsibility, it can help raise your credit limit, improve your utilization rate and boost your overall credit score. In fact, it may be a great way to get a credit card for people who might not qualify for other types of cards.

How to Use Your Credit Card Wisely

It’s very important to know the rules of the credit card game because if you don’t, you could quickly find yourself in financial trouble and in need of credit card help.

The following tips will help new and experienced credit card users avoid unwelcome credit card debt.

DON’T accept a credit card without reading the terms. Choosing a credit card involves more than liking the issuer’s catchy commercial. Instead, evaluate the credit card based on the fees, interest rates, and rewards—if it’s a rewards credit card. Moreover, compare credit card terms from different lenders to ensure that you’re getting the best deal.

DON’T use your credit card to make everyday purchases. Items like food, clothing and gas shouldn’t be purchased with a credit card.Using your credit card as a substitute for cash is a habit that can quickly lead to a situation requiring debt relief. For ordinary everyday purchases, leave your credit card in your wallet and use cash or a debit card instead.

DON’T stick to making minimum payments. Making only the minimum payment each month increases the payoff time and the amount of interest you’ll end up paying – which in some cases can be debilitating. For instance, if you have a credit card balance of $1,000 with an 18% interest rate, and you pay only the minimum monthly payment, it will take you 9.4 YEARS to pay off this debt – and you’ll have paid $923 in interest. You will be paying back nearly twice the amount that you borrowed and it’ll take almost a decade.

DON’T use your credit card to buy items you can’t afford. Living a borrowed lifestyle is the quickest way to get into debt or even go into bankruptcy. If you can’t afford a purchase today, chances are you won’t be able to afford it tomorrow, or even next month.

DON’T close a credit card account without knowing how your credit will be affected. There are times when closing a credit card can hurt your credit score. Avoid closing cards that still have a balance or those that make up a significant amount of your credit history.

DO use your credit card responsibly. Recognize which items you actually need (a necessity) or simply want (an impulse purchase). Avoid the “wants” as much as possible.

DO let your creditor know in advance if you can’t make your monthly payment on time. Foregoing your credit card payment is never a good thing, but many creditors will offer you some credit card help if you notify them before you miss your payment. Call your creditor, explain the situation, and ask that any late fees be waived. Missed payments may still adversely affect your credit score.

DO stay within 30% of your credit limit. A sizeable percentage of your credit score factors in the amount of debt you have versus how much you could borrow on your cards. Keeping your balances low helps maintain a good credit score.

DO negotiate a lower interest rate – especially if your current rate is higher than offers received from other lenders. The higher the rate, the more you’ll pay for carrying a balance on your credit card. Periodically evaluate the interest rate on your credit card to be sure you’re getting the best deal possible.

DO review your statement each month. Don’t take for granted that everything on your credit card statement is accurate. Be sure that your last payment was applied correctly, you were charged the right amount for all of your purchases, and there were no unauthorized transactions. Dispute any errors with your credit card issuer within 60 days and report unauthorized charges immediately.

For more credit card help, or to talk to someone about how to pay off credit cards, contact one of our consultants at US Debt Relief. Call us today at 1-888-910-8411.

What You Should Know About Your Credit Report

You should review your credit reports every year and, if necessary, take the time to clean them up. Mistakes on your report(s) can negatively affect your credit score, which is used by lenders to determine if they’ll lend you money and, if so, the interest rate you’ll pay. Some employers review credit reports, too, so faulty info could even affect your chances of landing that new job.

What does it mean to clean up your credit report?

Cleaning up your credit report means identifying, removing, or fixing inaccurate and outdated information – whether it is an incorrect notation about how an account was closed, dated information about a bankruptcy that should no longer appear on your report, or accounts that simply aren’t yours.

Be careful of credit repair companies that claim they can “repair your credit” or miraculously “boost your credit score”. Cleaning up your credit report does not mean hiring a credit repair company to remove delinquent accounts or eliminate other unfavorable entries that are legitimate. When it comes to rightfully removing inaccurate or old information from your reports, you can do that yourself with a little patience – and without the credit repair companies.

First, get copies of your credit reports

You probably only need to order credit reports from the three main credit reporting agencies (known as “CRAs”) – Experian, Equifax, and TransUnion. By law, you are entitled to one free copy from each CRA every 12 months. And because each report may contain different information, you should order a report from all three.

There are also specialty CRAs such as the Lexis Nexis Personal Reports or Medical Information Bureau. Some of these track information specifically about tenants for use by landlords. Others may contain more personal information and are used by employers and insurers. You’re entitled to one free annual report from these agencies as well – although determining which ones have a file on you could be a bit of a challenge.

Review your reports

In general, any adverse information that is more than seven years old can be legally removed.

Carefully review each report for any entries that are inaccurate or incomplete. Here are some examples of what to look for:

  • Debts and Loans: Make sure any listed amount of each debt and loan is correct. Make sure there are no duplicates. And verify your payment history is accurate
  • Defaults: You may see defaults if you made a payment more than 60 days late. If you have paid an overdue payment in full, make sure your report reflects that.

Check that your basic information is correct, such as:

  • Your name, date of birth, and address.

Contact the credit reporting agencies

Make a detailed list of anything you believe is inaccurate, outdated, or even missing. Then, gather supporting documentation that will backup your position. For example, if you closed an account that’s still reported as open, you’ll need to prove that it’s closed. Send a detailed letter directly to the appropriate CRA requesting the corrections be made to your credit report(s) and provide the supporting information.

Remember, each CRA may report different information, so you’ll need to examine reports from each agency.

Links to each Credit Reporting Agency:

Spring is the perfect time for cleaning, so reviewing your credit reports every spring will keep your credit score in the best shape it can be.

Credit Types

You’ll discover that borrowing money and accessing credit always involves a basic premise – and that premise is consistent regardless of whether your borrowing is associated with a credit card, personal loan, business line of credit, or a long-term loan. The fact of the matter is; you are expected to repay the full amount borrowed with interest. What’s more, once the dollar amount, purpose of the funds, and repayment schedule are clearly defined, all loans fall into one of two categories:

  • Installment loans
  • Revolving loans/lines of credit

Installment or Closed-End loans

Here’s how it works. You complete an application from a lender for a fixed amount of money with interest. If your credit history and score are exceptional, you will probably be approved. If you have bad credit loans or have filed for bankruptcy you may not.

The lender’s loan documents will confirm the full amount you’ve agreed to borrow, the amount of each payment and the repayment schedule for the term (length) of the loan.

Each payment is comprised of both principal and interest. Once the final payment is made, you have met your legal obligation. More importantly, you’ve demonstrated to the lending institution that you are a responsible borrower.

In the final analysis, an installment loan provides the borrower with a fixed amount of money and interest rate that has been lender approved. Following the approval, should you decide that you require additional monies, you may be required to begin the application process a second time.

Revolving Loans / Lines of Credit

In the case of a revolving loan, also called a line of credit, not all of the funds are dispensed at the onset of the loan. And the repayment schedule, principal balance, and interest are not always fixed – unlike an installment loan.

There is also a credit limit on the loan that you cannot exceed and need to be aware of because if you’re close to 100% utilization, the credit limit can’t simply be increased, and any increase must be approved by the lender. In addition, your credit utilization ratio (the amount of available credit that you have used) accounts for 30% of your credit score. A high credit utilization can have a negative impact on your credit score.

Since a revolving loan is never provided in a lump sum, your payments are calculated on the outstanding balance that you owe. The theory is that you will use what you need and repay it back in a cyclical manner. As you repay, the amount you can borrow is replenished¾up to your credit limit.

A prime example of revolving credit is your credit card. How to pay off credit cards is up to you. They offer several ways to pay over time. You can pay the full amount due each month, the minimum amount each month, or something in between. One imperative to remember, however, is if you only pay the minimum amount required each month, it may take several years to completely pay off the debt depending on the interest rate and balance due – and this assumes that you don’t continue to borrow against the available credit.

A second example is a charge card, which is frequently confused with a credit card because unlike a credit card, it does not offer credit and requires you to pay the entire balance in full each month.

With any revolving line of credit, the borrower must be judicious and exercise more restraint when it comes to purchasing decisions. In fact, a “spending filter” must be assumed so that your purchases are based on sound reasoning rather than impulse buying. You don’t want frivolous spending to cause you to search for debt relief programs.If you are looking for more information when it comes to personal loans or debt relief programs, call 1-888-910-8411 today for a free, no obligation assessment with one of our experienced consultants.

Missed Credit Card Payment. Now What?

It’s the end of the month and you just realized that you didn’t make your credit card payment that was due two weeks ago. Or, you opened your billing statement to find a late fee for a payment you thought you made—but didn’t. An accidental missed payment can happen to anyone. However, contacting your creditor sooner than later about a missed payment is the right course of action to help mitigate late fees or penalties.

Make the payment as soon as you can. Paying a missed payment a few days after the due date versus waiting for the next billing statement will generally prevent a late payment from being reported to the credit bureaus. Creditors typically report delinquent payments once they become at least 30 days late, so making your payment before your delinquency reaches the 30-day mark will provide you a little credit card help.

Call and ask for leniency. If you check your account online, you’ll probably see that a late fee has already been applied. In fact, some card issuers generate the late fee just minutes after 5 p.m. on your due date. And although the Credit Card Act of 2009 capped credit card late fees, always avoid a late fee whenever possible. After all, keeping more of your hard-earned money in your pocket only makes sense!

Many creditors are willing to waive a late fee—assuming you are not habitually late on payments. Contact your creditor, explain the mishap, and ask that your late fee be waived. If they won’t provide this credit card help, simply take it as a lesson learned, pay the fee, and be sure to send your next and all subsequent payments on time—every month. And remember perpetuallate payments will hurt your credit score.

The good news is you don’t have to worry about having your interest rate increased just because you were late with one payment—unless it is a promotional rate. The Credit Card Act of 2009 specifies that creditors can’t impose a penalty rate increase unless you have missed two consecutive payments. Thus, in most cases, your current rate is safe. The bad news, however, is that you’ll typically forfeit any promotional rate if you miss a payment—for any reason. A creditor who’s willing to waive a late fee might not be as forgiving when it comes to upholding your promotional rate.

Remember When Your Bills Are Due. If this missed payment was an isolated incident, odds are you have a good system for knowing when your bills are due. And this is key, especially if your ultimate goal is to figure out how to pay off your credit cards. But, if you are forgetting payments more often than not, chances are you need some credit card help. For some, a simple monthly payment calendar that exhibits the due dates and minimum payments for all of their accounts works best. If you are comfortable with technology, you can generally set up reminders and billing due dates in your email or calendar app of choice within your computer or mobile device. Be sure to set up payment reminders a few business days before the actual due date to give yourself time to get the payment underway.You can also set up an automatic payment plan through your bank’s online billing system to eliminate accidental missed payments. Be sure the payment is set for at least the minimum due or you’ll be charged a late fee. But remember, paying only the minimum is not the answer to the question of how to pay off credit cards. Also be sure that you have enough money in your account to cover the payment to avoid paying an overdraft, insufficient funds, or returned check fee as well.
Don’t forget, your creditor may waive your first last fee, but may not be as understanding a second time around.

To talk to someone about how to pay off credit cards, contact one of our Consultants at 1-888-910-8411.


Planning to consolidate your debt? You might be worried about what consolidation could do to your credit score. It’s common for many people to see their credit scores decline when they consolidate debt, at least in the beginning. As you pay down debt and reduce spending, you’ll probably see your score begin to climb.

Watching your score slowly increase and worrying that it might drop again is frustrating. Help yourself avoid some of the credit woes that go with debt consolidation by making these smart credit moves.


After paying off some of your debt, you might be tempted to close accounts that have a zero balance. You’ve finally gotten rid of that debt, so why would you want to keep the account around?

Surprisingly, closing your old credit cards or loan accounts could cause your credit score to fall. This happens because the length of your credit history is important to your score. A longer credit history indicates to lenders you have experience borrowing and repaying debt. This is shown on the report based on accounts that are open.

It’s usually better to keep your accounts open, even if you’re not using them. In order to improve your credit score when consolidating debt, an open account with zero balance can have a positive effect on your credit score.

The exception to this tip is if you’ve consolidated credit cards that have an annual fee or if you are unable to curb your spending. Credit cards that charge an annual fee will almost always still charge you the fee regardless of if you’ve used the card or not. The positive effects to your credit score may not make up for the money you’re losing.

Additionally, if having a credit card or other account with a zero balance makes you want to start spending, it might be better to close the account. You could potentially avoid overspending by eliminating payment methods.


Credit utilization is the amount of credit you’re currently using versus the amount of your credit limit. The closer you get to maxing out your available credit, the riskier you look to lenders. Having more available credit generally shows that you’re responsible with your credit usage and spending habits.

Credit usage is a huge factor in your credit score. It’s generally recommended that you use no more than 30% of your credit limit across accounts. The more you can keep your balances below that rate, the more likely you’ll see your score go up.


Applying to new loans, credit cards, and other credit accounts all at once could quickly drop your score. When you apply for a new account, lenders will make what’s known as a hard inquiry on your report. This inquiry can drop your score temporarily. Generally, a hard inquiry disappears from your report after about 24 months.

Since hard inquiries expire, applying for one account may not have a huge effect on your score. Applying to multiple credit accounts at once, however, can drop your score by quite a bit. It’s best to avoid applying for any new credit when you’re in a debt consolidation program. If you absolutely must apply for credit, make sure you look into your chances of approval before actually applying.


Monitoring your credit report helps you potentially catch unauthorized accounts or identity theft. If you notice a strange account or application on your report, you can take measures to report fraud. It’s usually much easier to stop fraud by catching it early than it is to repair your credit after extensive fraudulent activity.

Checking your score may also help improve your credit score when consolidating debt by allowing you to make changes in the way you’re managing debt. You should compare your score with past scores to see if it is moving up or down. If it’s improving, you know you’re on the right track and should keep doing what you’re doing. If you see it decreasing, it may be time to make changes to your credit and debt habits.


A frustrating aspect of increasing your credit score is the time it takes. Unfortunately, credit scores usually take several months to years to see a significant improvement. Being patient is an important part of building a good credit score.

As you try to improve your credit score, focus on making your consolidated monthly payment so you have a better chance of successfully completing your debt relief program.  You can utilize these tips to help improve your credit score.If you’re considering consolidating your debts with a debt relief program, you probably have a lot of questions. The Accredited Debt Relief Team is here to help answer those questions and give you professional advice on debt relief. Get a free consultation today to learn more.