Freeloader credit card guide

November 6, 2006

Credit card companies make their money from the interest and fees that you accumulate when you spend money on your card and don’t pay it back straight away. However, some people pay back their cards each month, thereby not accruing interest. They are known as ‘freeloaders’ and basically borrowing their money for free.

There was a time when freeloaders were seen as great customers, but now the credit card industry is trying to curtail freeloading by adding other fees to make sure freeloaders still turn a profit for them. If you are a freeloader or want to know the best ways to avoid these new charges, then here are some tips for you.

What exactly is freeloading?

Freeloading credit card users are those users that pay their outstanding debt in full each month, so they never carry a balance on their card. They use their card sensibly, and never cause their card issuer any problems. However, credit card companies cannot make a profit from freeloaders so they have started to introduce new policies to try and get money from these customers.

Annual membership fees

One way that credit card companies are making money from freeloaders is to charge annual membership fees for the cards. This means that the card company can make some money off the card user even if they pay their balance in full each month. However, the UK market is still too competitive for this to be a problem, and you should be able to find a card without an annual membership fee.

Reducing the interest free period

Perhaps the most common method of making money from freeloader credit card users is the reduction of the interest free repayment periods on credit cards. This is the time between buying something and having to repay the money. This period used to be 56 days, but now many companies have reduced it to as low as 42 days. This means you might still get charged interest if you buy something early in a month and don’t repay it until the next statement date. Make sure that you choose a card with a decent interest free period so that this technique doesn’t catch you out,

Cheques charged as cash

Most credit cards will charge interest immediately on cash withdrawals, but there are now other products that are also charged as cash. Items such as credit card cheques are often billed as cash, meaning if you use a credit card cheque you will start to pay interest immediately. Always check before using these products whether or not you still have the interest free period available. If not, then use another method of payment to maintain your freeloading.

Staying a freeloader

Although card companies are trying to make things harder to freeloader credit card users, there is nothing wrong with freeloading and if you are disciplined enough to pay your bill each month then you can effectively borrow money for free. Just make sure you read all agreements and that you find a card that doesn’t charge an annual fee.