What are Merchant Category Codes (MCC)

Merchant category codes (MCC) are four-digit numbers that a credit card issuer uses to categorize the transactions consumers complete using a particular card. Merchant category codes have several purposes. They often determine the rewards consumers receive for using their credit cards, and determine whether a business transaction needs to be reported to the IRS. Moreover, they  determine the percentage of each transaction a business needs to pay to the credit card processor.

BREAKING DOWN Merchant Category Codes (MCC)

The following examples show three common uses for merchant category codes.

1. If a consumer holds a credit card that offers 5 percent back on airlines, they should receive the reward on any purchase that is classified under MCC 4511, which is for airlines and air carriers.

2. Companies and government agencies report purchases of services to the IRS so the IRS can make sure those services pay all income taxes owed. If businesses make these purchases using a credit card, firms can use MCCs to determine which transactions are classified as services.

3. A business classified under the MCC for gas stations sometimes pays different interchange fees to its credit card processor than a business classified as a car rental company. 

Understanding MCCs Can Boost Credit Card Rewards

Individuals with rewards cards typically earn more rewards if they know their MCCs. Suppose you have a credit card offering 5 points per $1 spent at restaurants. The way the credit card company determines whether credit card transactions took place at a restaurant is by looking at the MCCs. If you buy lunch at a small mom-and-pop establishment that combines a restaurant with a grocery store, and the MCC is classifies the establishment as a grocery store, you won’t earn 5 points per $1 on what you thought was a restaurant purchase.

Hoever, if you visit this establishment frequently and you know its associated MCC, you can use a different credit card, perhaps one that gives you 3 percent back on grocery store purchases, to maximize your cash back.

Another possibility is that a credit card issuer fails to give you the correct amount of points or cash back even for a transaction that has an MCC that should trigger the bonus; in this case, you can contact the credit card company and ask them to correct the error.

To find out how a transaction is categorized, just look at your credit card statement. Under “category,” you’ll see how the credit card company has classified the transaction. Rather than showing the MCC, the statement typically lists the category name (such as “grocery stores” or “drug stores”) so you can easily understand the information.