When you apply for a credit card, it’s natural to wonder what factors determine your cashback percentage. After all, who doesn’t like free money? This article will give you some insight into how the market works and what kind of numbers you can expect from different credit card providers.
Market Competition
Credit card companies are competing for market share. Market share is the percentage of a company’s national credit card market, and it’s determined by how many people use their cards. Credit card companies want to make more money, so they will offer perks like cashback rewards to attract new customers.
The competition is fierce, especially since there are so many different payment methods available: cash, checks and debit cards to name a few. All these different options mean consumers have choices when it comes time to spend their money, but only one thing can be used at a time! Most financial institutes offer 2%, but there are a few 3% credit card as well.
The Nature of your Spending
The nature of your spending is also a factor in determining cashback percentages. For example, if you’re a big spender and use your card for all of your purchases, the issuer will be more likely to offer you a higher percentage since they are generating more revenue from you and don’t have to pay out as much in rewards.
Your Past Payment Record
In addition to your credit score, the card issuer will also consider your past payment record. If you’re a good customer who pays on time, they’ll be more likely to approve you for higher cashback percentages. On the other hand, if you’ve missed payments in the past or otherwise been delinquent on your bills, they may offer less than 1% back (or no cashback at all).
The Business Model of your Credit Card Provider
If you’re wondering how to decide on the best cashback percentage for your credit card, understanding how each provider makes money is a good place to start. Credit card providers make money in many different ways. Some charge a yearly fee for having a card, and some take out interest from the balance of your account (this is called a “balance transfer”). There are also other sources of revenue for credit cards that include transaction fees and annual membership dues.
Your Relationship with the Lender
A credit card company needs to know if you are going to be a reliable customer, and the easiest way to do that is by looking at your past history with them.
They will look at how long you have been with them, if you have any other credit cards from them and what their relationship has been like in general. They also want to see if they can trust your word regarding paying off debts since no creditor wants a customer who will run away without paying back their debts. In addition, they might offer you a higher cashback reward percentage on your next card purchase if they can trust you.
SoFi experts commit, “Earn up to 3% cash back toward your financial goals when you apply for a SoFi Credit Card.”
In conclusion, many factors determine the amount of cashback you can earn as a credit card holder. If you want to earn more cashback on your spending, then one way is to determine which category your spending falls under and pay attention to what kind of provider you choose for your loan.