What economic conditions cause credit card company stocks to perform well?
Aug 20, 2009 in
Investing
Mr Grimes
I own a few credit card company stocks and recently read that people are choosing to remain current on credit card payments above remaining current on their mortgage responsibilities. This got me to thinking…what exactly makes credit card companies more profitable? Would they rather see their customers paying responsibly, or would they rather have late payments so they can rack up fee income?
I own a few credit card company stocks and recently read that people are choosing to remain current on credit card payments above remaining current on their mortgage responsibilities. This got me to thinking…what exactly makes credit card companies more profitable? Would they rather see their customers paying responsibly, or would they rather have late payments so they can rack up fee income?
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2 comments
DrIG on August 21, 2009 at 4:00 am
“Would they rather see their customers paying responsibly, or would they rather have late payments so they can rack up fee income?”
It is not an either or proposition. Of course the credit card companies would like to receive higher fees when people are late with their payments. They do not like to go to court because of the legal expenses when people do not pay. They are most concerned by bankrupcy which means in many cases tha the person is rrelieved of his debt and does not pay anthing at all. They loose here.
Credit companies have found other ways to increase their bottom line. They have for example reduced the number of days after the billing cycle ends in which the person who has the credit card is required to pay, they have raised interest rates for individuals who are late in paying their credit card bill and even raised the interest rates for late payments on other bills.
andrewtrades on August 21, 2009 at 5:21 am
Last year on into early this year, when liquidity in the lending markets was high and it was extremely easy to borrow money. People leveraged themselves to the hilt, took out second mortgages, maxed out their credit cards, and bought expensive jewelry, plasma screen TVs, and iPods.
Now, we’re facing different market conditions.