Good Credit Not So Good?

In a shocking turn of events, credit card companies have recently concocted a new scheme to make more money. Unlike in the past, when credit card companies could rely on a small percentage of their customers to pay a lot of interest for their profit, there are now too many customers who cannot pay anymore. The credit card companies are suddenly owed way too much, and they have lost billions as a result of the economy.

The new scheme is to charge “good” customers an annual fee. That’s right, if you are one of the remaining responsible customers who manages to pay off the bill in full religiously every month, you are in danger of being penalized for doing what you are generally encouraged to do.

From a financial perspective, paying off your bills each month is purely beneficial to you, not the credit card companies. They make their money mostly off of interest payments, and since you aren’t paying them any interest, they aren’t making any money off of you.

In fact, while most people are getting behind paying interest on the consumer debt they’ve accrued, if you charge items on your card and then pay off the bill in full at the end of the month, you’ve actually been leveraging the credit card company’s money instead of the other way around.

In other words, you were able to keep the money you would have spent until the end of the month, ostensibly to earn interest in your savings account or the stock market (though perhaps not so much in this economy), and as a way of earning incentives from the credit card companies like cashback rewards for all that stuff you charged.

The credit card companies recognize that people who don’t pay them interest are essentially a losing proposition, so in order to even the score, they’ve decided to “experiment” with the idea of charging an annual fee averaging $29 to $99 per year.

For the individuals who do pay off their balance every month, this is probably not an unreasonable sum to expect, but it does seem rather arbitrary to issue an annual fee that specifically targets those who pay off the bill each month. Even though these are not individuals paying a lot of money in interest, they have proven themselves to be reliable customers, and that seems like exactly what the credit card companies need in a time of uncertainty.

One of the main reasons for this new move is the pressure of new legislation in Congress that will seek to restrict the ways that credit card companies can charge their customers.

In a way, this is probably a noble gesture, as anyone who is suffering from consumer debt in an economy like this should avoid having even worse conditions sprung upon them. Doing this would undermine not only that individual’s financial integrity, but the integrity of what’s left of the economy as a whole. Nevertheless, it is troubling what happens if you disagree with the annual fee and want to cancel your card.

With the credit crunch still in full swing, credit card companies are simultaneously more likely to charge you more in interest and fees, and more likely to reject new applicants for a card. This is because the companies have to be careful about giving out credit to anyone who cannot demonstrate the ability to pay it back.

At the same time, though, they are mulling over the possibility of alienating the very customers who can and do pay off the balances each month. Fortunately for the loyal customer, credit card companies who do require an annual fee might still be willing to negotiate or waive the fee. Hopefully the benefits of being “good” customers don’t disappear in the months to come.

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