Credit Card Companies Profit Most From Borrowers With Bad Credit

Credit card issuers make most of their money from interest charged on balances carried month to month, and that cost falls hardest on cardholders with weak or thin credit histories, according to reporting from Bankrate. The report frames card profitability as a function of who revolves a balance rather than who simply holds a card, a distinction that matters most to borrowers already paying more to access credit.

How do credit card companies make money when you carry debt?

Issuers collect revenue from several streams, but the dominant one for most companies is interest on unpaid balances. A cardholder who pays the statement in full each cycle generates little or no interest income; one who carries a balance generates ongoing interest charges until the debt is repaid. Bankrate's reporting ties this structure directly to the question of who ends up paying the most over time — borrowers who cannot or do not pay in full, cycle after cycle.

Issuers also earn interchange fees, a cut of what merchants pay each time a card is swiped, but that revenue stream does not depend on a cardholder's credit standing. Interest income does. That is the mechanism Bankrate's report singles out as the core driver of profitability tied to borrower risk.

Why do borrowers with bad credit pay more for the same card?

Issuers price risk into the interest rate offered on a card application. A thinner or weaker credit file signals, from the lender's perspective, a higher chance of missed payments, so the rate attached to the account is set higher to compensate. The practical effect, as Bankrate's reporting describes it, is that the same $1,000 balance costs a borrower with bad credit more in interest than it costs a borrower with strong credit, even if both make identical minimum payments.

That gap compounds the longer a balance sits unpaid. A cardholder who revolves debt for years at a higher rate pays substantially more in interest than one who revolves the same debt at a lower rate, which is the central dynamic Bankrate's report says makes bad-credit borrowers disproportionately profitable for issuers.

What other fees add to the cost of carrying a balance?

Beyond interest, cardholders with weaker credit are more likely to be offered cards that carry annual fees, which strong-credit cardholders can often avoid entirely by qualifying for no-fee products. Late fees and returned-payment fees apply broadly across card types, but they land more often on accounts already stretched thin, compounding the cost of carrying debt rather than paying it down.

Credit limits assigned to higher-risk accounts also tend to run lower, which can push utilization — the share of available credit in use — higher even when the dollar balance is modest. Higher utilization can itself weigh on a credit score, reinforcing the cycle Bankrate's reporting describes.

Does a low credit score affect more than the interest rate?

Yes, according to separate reporting on public attitudes toward credit scores. A survey covered by The Wealthy Will found that consumers increasingly view the scoring system itself with skepticism, a sentiment that aligns with the mechanics Bankrate lays out: a number assigned by a scoring model determines not just approval, but the price of borrowing for years afterward.

A low score can also limit which products a consumer is offered in the first place, steering some borrowers toward secured cards or subprime products with higher costs built in from the start, rather than toward the lower-rate cards available to applicants with stronger files.

What can cardholders do to limit what they pay in interest?

Bankrate's reporting points to the most direct lever available to any cardholder: paying the statement balance in full each cycle eliminates interest charges regardless of the rate attached to the account. For borrowers who cannot pay in full, prioritizing the highest-rate balance for extra payments reduces the total interest paid over time compared with spreading payments evenly across multiple cards.

Cardholders rebuilding credit can also ask issuers directly about rate reviews after a history of on-time payments, since some issuers will lower a rate for an account in good standing without a formal reapplication. None of these steps changes how issuers price risk at the outset, but each reduces the amount of interest income an issuer ultimately collects from a given account.

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