What's With Credit Card Companies?
The credit card line of business is about lending money to those who need it for a short-term purpose. What these companies do to give money is issue credit so that consumers can purchase items and delay payment until a specified period. As a consumer, if you don't have cash at hand and you have a plan to buy something that you need immediately, a credit card can help you obtain the item and pay for it at a later date.
Credit card companies operate in the same way as loan providers; they allow you to borrow money at a price by placing an interest on the amount you have to repay. Before extending credit to you, these companies have to approve you first by prescreening or prequalifying you. As a consumer, you have to know the difference between prescreen versus prequalify. It's especially crucial if you have plans to apply for a credit loan in the future.
So, here's the thing, credit card companies profit from an increased number of people wanting to take out a credit loan. It's especially true if borrowers choose to carry their debts for long periods, and thus paying more interest.
Credit card companies also benefit from the cashless commerce trend. They make money with each transaction that people make using their credit. Every time a consumer makes a cashless purchase, the profit of credit card businesses increases.
What does the profit of credit card companies have to do with the stock market? Well, investing in the stock market means cashing in on whatever profit the companies that issue stocks make. If the profits of corporations that issue shares are on the rise, expect higher stock prices. The market is likely going to fall as well if there's a decline in profits.
Credit Cards And The Country's Economy
Another factor that causes the rise and fall of the stock market is the state of the economy. And credit cards are still part of it. Investors won't be afraid to invest in stocks of major US companies like Sprint if the economy performs well. A growing economy positively impacts the market. A declining one, on the other hand, will result in negative dynamics.
Credit card debt can either benefit or hurt the economy. When people use their credit cards to purchase something, they're going to help businesses generate higher revenue. Thus, stimulating the economy. More than two-thirds of the US Gross Domestic Product or GPD gets attributed to personal consumer spending. Too much credit card debt, on the other hand, can hinder the spending ability of consumers in the long run and the economy ends up getting hurt.
Conclusion
Credit cards have a direct impact on both corporate profits and the economy. Thus, they also play a role in the stock market's rise and fall.