What is a freeloader?
Freeloader is a term used in the credit card industry to describe a customer who pays off his credit card balances every month and never pays interest or fees.
Deeper definition
Freeloaders are not profitable to credit card companies the way “revolvers” are. Revolvers carry balances from month to month and pay interest charges. They are the ideal customers for credit card issuers.
Credit card companies appreciate customers who make late payments because they can charge steep late fees and raise the card customer’s interest rate. A freeloader, on the other hand, never incurs late fees since he always pays on time.
Although credit card companies don’t have a high regard for freeloaders, credit bureaus do. Credit bureaus use a consumer’s payment habits to calculate his credit score. Freeloaders, therefore, are rewarded for their frugal, reliable financial style with higher credit ratings — which can land them better rates on mortgages and other loans.
Credit cards can significantly build a customer’s credit score, which is essential to qualifying for a car loan or other loan.
Freeloader example
Victor has two credit cards: He uses one for everyday expenses, such as groceries and gas. He uses another card to pay for airline reservations, hotel rooms, rental cars and other travel or vacation expenses. When Victor gets his credit card statements each month, he pays off the entire balance on both cards. He has never paid interest on a credit card. He also makes his payments on time and never exceeds his credit limit, so he never incurs penalty fees.
Victor may be a freeloader to the credit card companies, but he’s a smart consumer with very little debt and a high credit rating.
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