Offered a Rewards Card? Credit Card Companies Think You’re Rich

Do credit card companies think you’re wealthy? MIT economists Hong Ru and Antoinette Schoar analyzed more than a million credit card mailings from 1999 to 2011 and made note of the income and education levels of recipients. They found that credit card companies tended to offer mileage and rewards cards to wealthier people, while poorer people received cards offering low introductory APRs. From the Washington Post:

Cards with travel rewards epitomize the kind of product aimed at the rich and educated. It’s a fairly exclusive niche — only about 8 percent of credit card offers fall into this category. People in this demographic are the most likely to jet around, and therefore most likely to appreciate a card that will earn them frequent-flier miles.

But frequent-flier credit cards carry other strange features. Even though they’re targeted at a rarefied clientele, mileage cards tended to have much higher interest rates, Ru and Schoar noticed in their data. They also had lower late fees and other gotcha features. The kinds of cards aimed at rich, educated people did not seem interested in making money off financial mistakes like the occasional late payment.

In contrast, the card offers sent to poorer, less-educated people were often loaded with risky features: low introductory APRs, high late fees, and penalty interest rates that kick in if you break the rules.

Notably, much of predatory late fees and penalties were curbed after the Card Act was passed in 2009 following the financial crisis, though low introductory APR cards that change to high interest rates after a certain time period are still common.

I have a rewards card that I pay off every month, but I didn’t get it by an offer in the mail. Annoyed by prescreened credit card offers sent to me on a near daily basis, I opted out of them permanently a few years ago (to do so you have to physically sign and mail in a form). It was nice not having to tear up all those offers anymore! When I was ready for a card, I did all my research using credit card comparison sites to find the one that made the most sense for me.

Photo: FrankieLeon

Support The Billfold

The Billfold continues to exist thanks to support from our readers. Help us continue to do our work by making a monthly pledge on Patreon or a one-time-only contribution through PayPal.