Consumers need to understand how these companies operate in order to use their credit cards conscientiously and avoid destructive behavioral spirals. However, because I see so many reader comments detailing bad experiences with credit cards, I decided to do some investigating. Businesses need to make money. What this means for you: While this may seem like an exploitative tactic, the credit card companies act as intermediaries for all parties involved in the transaction: What you can do about it: 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.

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I try to avoid using a card anywhere that adds this charge. Not only will they drive up your credit card bill, but incurring certain fees, like late fees, will damage your credit score, too. 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.

A cash advance might seem like the answer to your short-term money problems, but you could be paying that off for years. Personally, I have about six credit cards that I use for specific purchases. A recent survey of major U. 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?

The more spending power cardholders have, the more money these businesses make, whether they carry high-interest balances or not. Even a small purchase can quickly become a burden when you account for the interest over time. 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. 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.

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. Read the original article on The Simple Dollar. Follow The Simple Dollar on Twitter. Why big data can make HR more important.

You are using an outdated version of Internet Explorer. For security reasons you should upgrade your browser. Please go to Windows Updates and install the latest version. Trending Tech Finance Politics Strategy Lifestyle Sports Video All. You have successfully emailed the post. How credit card companies make money. Michael Gardon, The Simple Dollar. THE BOTTOM LINE When used responsibly, credit cards offer numerous benefits.

How Credit Card Companies Make Their Money [Infographic]

More from The Simple Dollar: How Apple Pay Could Destroy The Credit Card. The SImple Dollar credit card.

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