ShmoopTube

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finance a la shmoop. how do credit card companies work? you could write a

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book on this but don't. it'll hurt instead think about a credit card [man carries huge book and grimaces]

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company is kind of twisted moneylender who really makes money in two ways.

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well first they make money from the people who take your credit cards like

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when you use your credit card to lovingly pay shmoop 20 bucks a month for our

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awesome content. thank you very much. that $20 charge carries about a 1% hit. from

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the credit card company that is the hard-working elves here at shmoop only

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keep about nineteen dollars and 80 cents from that twenty you just paid. credit [equation]

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card companies need to pay for their jets right? well that one transaction was

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just 20 cents but there are gujilion's of them so the dough adds up to billions

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and billions really fast. unless do you think the job of being a credit card

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company is easy, note that every few thousand transactions is done by some

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bad actor like no different kind of bad actor. you know meaning of theif someone

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behaving badly they've stolen your card and if race to Best Buy [man runs out of store carrying TV]

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hoping to abscond with ten flat screens to sell on the street corner and make a

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fast buck. while the credit card company is generally responsible for those

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frauds against mankind and have to hunt down the bad guys .so that's one way

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they make money. the other way credit card companies get paid is that they get

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money from consumers who use them either directly or indirectly directly. means

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something like an annual fee. and then there are charges well you know that is

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if you don't pay off your credit card bill each month you carry what is called [credit card rates listed]

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a balance. and on those amounts you pay huge interest. like for many buyers on

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credit the fee is 15 to 20 percent per year these days and sometimes more. so if

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you bought a thousand dollar television set with your 20% credit card and didn't

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pay it off for three years you'd have paid $200 a year in interest for three

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years or $600. do you think Visa Mastercard or Amex pay 20% interest for

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the money they borrow to lend to you? hardly they pay very very low interest

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rates like just a few percent in there so on the [visa employees pictured]

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20% they charge you an interest to punish you for not paying off your

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credit card their cost is more like 2% I either making like an 18% spread or

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profit margin on that money. the 600 bucks you paid for renting the grand for

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3 years from the kindly loving people at visa

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Oh made visa over 500 bucks on that money nice. work if you can get it and [equation]

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you know a really nice jet.

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