How Credit Card Companies Make Money

Image by GettyImages; Illustration by Bankrate

You’re probably familiar with cardholder fees related to credit cards, but that’s just one main source of revenue for credit card companies. They also generate income from two other main sources: credit card interest and transaction processing fees.

Credit card companies use various strategies to generate revenue. Whether you carry a balance or not, your credit card activity contributes to the issuer’s income. Understanding how credit card companies make money can empower you to minimize fees and interest payments through responsible card use. 

What is the role of credit card issuers and networks?

Credit card issuers — like Chase and Citibank — are lenders. When you buy something with a credit card, you’re borrowing money from a lender with the expectation that you’ll repay it, sometimes with interest. At the point of sale, the card issuer pays the merchant, and then you’re obligated to pay the issuer back. If you don’t pay back your charges, the merchant still gets paid, and the card issuer is responsible.

The other major players are credit card networks. They manage the process between merchants and card issuers. The four major credit card networks are Visa, Mastercard, American Express and Discover, with American Express and Discover serving as both networks and issuers.

There are multiple details that unfold when you swipe your card, but put simply: money must transfer from the issuer to the merchant’s bank, a process the network manages. The network checks with the issuer to ensure the funds are available and the card is active before approving the transaction. All of this happens in a matter of seconds at the point of sale and, yes, fees are involved in the process.

How do credit card companies generate income?

Credit card companies make the bulk of their money from interest, cardholder fees and transaction fees paid by businesses that accept credit cards.

• Credit card interest
  

  Interest charges are the fees that you, the cardholder, pay for the privilege of borrowing money via your credit card. In most cases, you won’t owe interest on your purchases as long as you pay off the balance in full each billing cycle. Interest charges are determined by your card’s annual percentage rate (APR), and your APR depends on several factors, including your credit score and the type of credit card you’re using.

  Your card likely also charges different interest rates depending on the type of transaction you’re making. For instance, a purchase APR range is likely lower than the APR for cash advances. Balance transfer APRs may also vary.

  Regardless of the type of APR, the fees represent a major source of revenue for card issuers. More than 50 percent of cardholders report carrying card debt from month to month, according to a June 2024 Bankrate survey, and the Federal Reserve Bank of New York reports that credit card balances hit $1.18 trillion in the first quarter of 2025. With average credit card interest rates now around 20 percent, it’s easy to see how this can be a significant source of revenue for issuers.

• Interchange fees
  

  Even if you pay off your credit card balances every month and never pay interest charges, issuers are still making money off of you. That’s because every time you use your card, the merchant pays a fee to cover the cost of processing the transaction. This is referred to as an interchange or swipe fee.

  Interchange fees cover the cost to communicate with the issuer, check for fraud and card validity and ultimately process the payment. They’re unavoidable for merchants who want to accept credit or debit cards as forms of payment. These fees are largely invisible to consumers, yet they are an important expense to consider for businesses.

• Annual and other fees
  

  Many credit cards charge an annual fee to hold the card, representing an additional revenue stream for issuers. There are plenty of excellent no-annual-fee credit cards out there, but cards with annual fees are often worth it for the right cardholder who can fully use the perks, features, rewards and benefits that come with that annual fee. In this case, cardholders do get something in return for the fee, even as issuers generate revenue.

  However, there are numerous other fees that credit card companies may charge, which help them make money, many of which can be avoided by cardholders. Avoidable fees include late payment, cash advance, balance transfer and foreign transaction fees. While these fees can generate significant revenue for credit card companies, cardholders can avoid paying them altogether by understanding their card’s terms and conditions and using their cards responsibly.

How can cardholders minimize fees and interest payments?

As a cardholder, there are several steps you can take to minimize the fees and interest you pay. It all starts with understanding how your credit card works and then making smart decisions.

What should you do if you are charged a fee?

If you’re charged an avoidable fee, such as a late payment charge, don’t hesitate to contact your credit card issuer. They may be willing to waive the fee, especially if you’re a good customer who normally pays your bills on time. Mistakes happen and it never hurts to ask.

Otherwise, take steps to ensure you don’t incur that fee again. That could mean setting up due date reminders or auto-payments or rethinking your budget and spending less to avoid interest charges.

The bottom line

As a cardholder, you help credit card issuers earn money even if you’re responsible with your cards and never pay interest or avoidable fees. The annual fee you may pay, along with the interchange fees generated each time you use your card, contributes to the credit card issuer’s revenue.

Using a credit card comes with costs for the privilege and convenience. Understanding these expenses and using your card responsibly is the key to earning valuable rewards while avoiding unnecessary fees.