Is paying off your credit card bill bad for your credit rating?

Helvetica_Van_Buren

Anthorn wrote: »

Here's the full quote

I fail to see how those who pay interest are less profitable than those who don't pay interest.

Because if you pay £10 interest, you end up with £10 less than everybody else that has NOT paid interest.

JimmyTheWig

Anthorn wrote: »

I fail to see how those who pay interest are less profitable than those who don't pay interest.

Ok, lets assume there's a credit card company charges 0.01% interest.
Customer A pays his balance in full on time every month and pays no interest.
Customer B doesn't ever pay his balance in full and keeps an average debt of £100 on the card for a year and pays 1p interest.

Clearly Customer B has paid the card company more interest than Customer A.
But does that mean that Customer B was more profitable for the card company than Customer A?
I don't think so. I think the £100 debt on Customer B's account has cost the company more than 1p. So Customer A was more profitable for the company than Customer B.

By symmetry, if the company charged 1000% interest then Customer B would be more profitable for the company than Customer A.

Does this demonstrate my point that just because someone pays more interest doesn't necessarily mean that they are more profitable for the company?

eskbanker

JimmyTheWig wrote: »

Does this demonstrate my point that just because someone pays more interest doesn't necessarily mean that they are more profitable for the company?

Sort of, but only by picking an obviously exaggerated rate of 0.01%!

My belief (which I'll freely admit I can't back up with hard facts) is that card companies will set an interest rate for any given account based on a number of factors, including credit risk assessment (e.g. how likely to default), assigned credit limit, cost of borrowing the money to lend in the first place, a variety of overheads and expenses, and, yes, an element of profit. So, it would surprise me if a card company had set an APR for a customer that wouldn't generate at least some profit from any interest paid.

Where I differ from our dearly departed poster (until the next comeback that is) is that I don't believe that card companies ruthlessly eradicate the non interest payers as being non-profitable. As has been pointed out, card companies will also generate revenue (and therefore ultimately some profit, assuming charges are set appropriately) from transaction charges, so it's nothing like as black and white and simplistic as "interest-payers are more profitable than full balance payers", and even if it was, that still wouldn't automatically mean that full balance payers would have cards withdrawn or APRs increased, as asserted.

bigadaj

Has anyone heard about a credit card account being closed with consistent payment in full?

I haven't but it's a possibility, however unlikely.

JimmyTheWig

eskbanker wrote: »

it's nothing like as black and white and simplistic as "interest-payers are more profitable than full balance payers"

Yes, that was my point with the exaggerated interest rate example. That just because a customer pays more to the credit card company doesn't mean that they are more profitable.

and even if it was, that still wouldn't automatically mean that full balance payers would have cards withdrawn or APRs increased, as asserted.

Increasing the APR for a customer who pays no interest would seem pointless.
As to withdrawing cards, it's hard to say. Some people think Egg did it. But I had an Egg card at the time and never paid interest and didn't have my card cancelled.

bigadaj wrote: »

Has anyone heard about a credit card account being closed with consistent payment in full?

I haven't but it's a possibility, however unlikely.

The only one I can think of is Egg, and that is pretty much all on heresay.
https://en.wikipedia.org/wiki/Egg_Banking#Controversies


I think it is reasonable to assume that card companies will want to maximise their profits.
I think if credit card companies made more profits from interest-paying customers than non-interest-paying customers, and the non-interest-paying customers were hampering their ability to get more interest-paying customers, and the negative press for doing so wouldn't cost them more than they would make then they would cancel the cards of the non-interest-paying customers.
The fact that this appears to have happened at most once in the last 20 years suggests that they don't believe they can make more money by doing this.

eskbanker

JimmyTheWig wrote: »

The only one I can think of is Egg, and that is pretty much all on heresay.
https://en.wikipedia.org/wiki/Egg_Banking#Controversies

Thanks for the Egg link - based on that article and those linked from it, I think it's fair to say that culling 161,000 accounts as part of a significant risk-based review after a corporate acquisition at the time of the global financial crisis could legitimately be regarded as something of a one-off! As you say, plenty of hearsay - some full balance payers were clearly caught up in the exercise but I didn't see anything to suggest that they were being singled out specifically because of not paying interest.

Smodlet

Where is Anthorn? I'm getting cold, I need some more of his "blanket statements". :rotfl: