Credit cards are incredibly profitable. Capital One Financial Corp generated a net revenue margin of 17.29 percent during the last three months of 2014, a staggering margin in a world of ultra-low interest rates. And Capital One is not alone: all major card issuers are able to generate outsized returns on the back of high interest rates and a complex web of fees and charges. Today we have a tale of two products. For savvy consumers, the rewards on credit cards have never been greater. But, for many people, credit cards remain an incredibly expensive way to borrow.
I spent most of my career working for credit card companies. The most profitable customer maxes out his credit card and pays only the minimum due. In addition, he will regularly pay a few days late and often goes over the credit limit. The least profitable customer has a lucrative rewards credit card and pays the balance in full and on time every month. In between these two extremes lies a minefield of fine print, ready to generate fee income or higher interest rates at a moments notice. Below are the four biggest traps, and tips on how to avoid them.
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