Deadbeat: What it is, How it Works, Special Considerations

What Is a Deadbeat?

Deadbeat is a slang term for a credit card user who pays off their balance in full and on time every month, thus avoiding the need to pay off the interest that would have accrued on their accounts.

A deadbeat is also called a "nonrevolver" or a "transactor." They'll get this derogatory name by being a potentially less profitable customer for a credit card company than a revolver, or someone who carries a balance from month to month.

How Deadbeat Works

By not carrying a balance, a deadbeat does not incur any interest charges, and by paying on time, they don't incur any late fees.

However, so-called deadbeats in the credit world also do not rack up bills they never pay, so they do not generate significant losses for credit card companies like real deadbeats, who do not pay their bills.

  • Usually used as a derogatory term, a deadbeat in the credit card world is someone who pays off their balance in full every month.
  • Deadbeats often reap the rewards from credit card programs without having to pay high fees or interest due to regular and full payments on their cards.
  • Credit card companies make money from deadbeats (3% fees) that merchants pay on purchases. 
  • Deadbeats with credit cards do not generate significant losses for credit card companies.

Deadbeats Can Still Generate Revenue for Credit Card Companies

Why would a credit card company want a deadbeat as a customer if they do not earn interest or late fees from them?

Because credit card companies still earn money from deadbeats. One way they make money is that merchants pay about 3% of each credit card transaction in fees to the credit card company.

For example, suppose a deadbeat charges $2,000 on their card. Then, if they pay that balance in full and on time and do not allow the credit company to charge 10% to 30% in annual interest, the credit card company still earns money. How? Because the company makes $60 from the deadbeat customer via the 3% fees that the merchant pays on the $2,000 charges.

Credit card companies can also make money from nonrevolvers by charging an annual fee for the privilege of using that card.

Special Considerations

Deadbeat customers usually feel as if they come out ahead by using a credit card over cash or a debit card. They use credit cards for the convenience and consumer protections they offer. They also use them for the grace period that lets them keep their cash in their bank accounts between the time they charge a purchase and the time the credit card bill is due.

This grace period is usually about three weeks. Another reason nonrevolvers or deadbeats like using credit cards are the awards programs. And because deadbeats do not carry a balance and do not pay any interest, a rewards card that offers 1% to 5% back on purchases means a deadbeat can make money from using a credit card.

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