Exploding The Myth Of The Bad Credit Card Customer

Too often, when we post about undeserved credit card rate hikes, a few readers will justify the credit card company’s actions by pointing out that the OP is, in pure business terms, a bad customer. If you’re a consumer, this is the worst way to visualize your business relationship with your credit card company. Here’s why.

The main problem with this way of thinking, other than that it’s incorrect, is that it frames the relationship in terms that favor the company over you. By giving the credit card company all the power, it minimizes your value, and could actually make it harder for you to stand up for yourself when negotiating with the company.

To begin with, let’s address this myth:

“When you pay your balance in full every month, you lose the credit card company money.”

This is false. The credit card company doesn’t get to charge you interest, sure, but it still earns merchant transaction fees every time you use your card somewhere. It’s in the company’s interest that you use the card frequently, whether you carry a balance or not.

“The company has to raise rates to try to make money off of you.”

This is only partly true. If you carry a balance, then any rate hike is going to generate extra money—but the company knows that it runs the risk of you closing the account and freezing the balance, limiting potential future revenue.

If you’re one of those no-balance people, there’s probably another, long-term reason for the rate hike. After all, if you don’t carry a balance, no interest rate is going to generate extra money. The company might be trying to increase its potential payout if you start carrying a balance one day, but remember that they have a detailed view of your payment history; if it’s obvious you never carry a balance, then a 5% or 50% interest rate is going to earn them the same amount: zilch.

So why would a company hike the rate on no-balance customers? Maybe it’s simply in their interest to carry more high-rate accounts than low-rate ones, and this is the perfect economic environment to slide a chunk of accounts over to the high-rate range under the excuse of “market conditions.” Maybe it’s really not as personal as you might think, but simply a consequence of decreased competition for your business—the company knows it isn’t going to have to fight as hard to keep customers, so why not make the terms more favorable for them while they’ve got the chance? If you ever do start carrying a balance, they’ll be glad they did.

If a company really wants to guarantee extra profits from all customers, including the prompt-paying ones, the only way to do it is to charge a fee of some sort. They can invent an annual fee, for example, or create new fees for transfers or special uses of the card (like obtaining cash advances or paying your taxes). Or they can play really dirty, and drastically reduce your credit limit to increase the odds that you’ll generate over-the-limit fees.

“You’re not a good customer if you’re not generating the maximum revenue possible for your customer profile.”

Yeah, right. Look, you’re certainly not an ideal customer, but if you were actively losing the company money, it would simply stop doing business with you.

Credit card companies are adjusting agreements to be more in their favor because, quite simply, they can right now. If there’s not a lot of demand for your business—as in our current economy, for instance—any smart credit card company is going to downgrade its terms accordingly. After all, they aren’t going to have to compete as strongly to attract new customers or keep existing ones. The idea that “no one is lending or accepting new credit card applications” is so popular right now that it works in companies’ favor, by making customers think they’re powerless to negotiate for more favorable terms.

So remember: although it may be harder to negotiate these days, and although credit card companies may be less willing to budge on terms, you shouldn’t think of yourself as a “bad customer” who deserves what you get. It’s self-defeating, and it’s how the credit card companies would prefer you think.

(Photo: Valerie Everett)