[fendale]

The Credit Card companies offer the rewards to encourage people to use their cards. The rewards may be about 1% of spend or so in general. By encouraging people to spend more, a significant proportion of those people will fail to pay the card off in full each month and get charged X% interest (not sure what common rates are, but they are pretty steep).

I'd imagine the companies have done their sums, and make much more on interest that they pay out in rewards when averaged across a large number of customers.

I would also suspect (haven't researched it) that reward paying cards will have a higher interest rate than non-reward cards.

[mgkimsal]

Nope. They make the money for the rewards by charging merchants higher fees if you use a rewards card vs a non-rewards card.

My standard merchant fee rate might be 2.4%, but if you use a 'airline miles reward card' with me, I may end up having to pay 2.9% or 3.4% (or more). I can't not take your card - against Visa/MC terms of service - so I'm stuck paying for your 'rewards'.

[bobds]

They want you to use your card because they get paid on the merchant side as well. So it doesn't matter if you always pay off the card on time.