Why do credit cards require a minimum annual household income?
Here's one reason that's being overlooked in answers so far. (@ChrisInEdmonton, this is for your comment on @Chad's answer.) How do credit card companies make money? Sure, there's interest charges, but those are offset significantly by the cost of borrowing money, and by people defaulting on their debt / entering bankruptcy. The other way they make money is by processing transactions. They get a cut of whatever you buy. If you're a high-income person, and you're going to process a lot of expenditures with this credit card, your business is worth more. They will be willing to bribe you with things like cash-back, frequent flier miles, and insurance on your auto rentals, so that they can be your #1 go-to card.  (This works in concert with the way that some credit card vendors with richer clientele overall - American Express - get to charge higher merchant fees for access to these customers' wallets. But that was mentioned in other answers.) If you're not a high-income person, your business is worth less. If you go somewhere asking for credit, they're going to try and give you a card which will earn them the most money - which probably isn't the one where they give you back 50% of their transaction fee in rewards. It's a calculated risk, since they still have to compete against cash, debit cards, and all the other credit card companies, so they don't have you totally over a barrel, but you shouldn't expect as many freebies, either. While you're asking about a particular bank, I'll give my opinion of this in general.  I think a $12,000 household income is pretty low to be given credit. The risk to the bank is certainly higher than if the income were at that $35,000 level. They can use this to differentiate what they offer for perks, and if they ever collateralize the debt of these cards, it's a clearly defined demographic. "I don't know, but I can guess. You'll notice the Elite card has higher rewards. A card might want to convince merchants that they represent high end buyers, and use that to negotiate higher merchant discounts. Issuing bank: ""Our 10 million card holders are sophisticated and have lots of discretionary income. If you don't agree to this rate, we'll terminate the contract and they will take their business elsewhere.""  Merchant: ""But it's twice the rate of everyone else! I'm sure these customers have other means of payment, and besides, how many of those card holders are actually using it?"" Issuing bank: ""Our cardholders signal their interest in the benefits of cardholding by paying us an annual fee. If they didn't want one, they'd stop paying right? They clearly know they have one and our records indicate they use them regularly. We're pretty sure if you don't wise up they'll shop at your biggest competitor, another client of ours. pause Frankly, they already do.""" It is much simpler than any of that.  People who make money have a greater capacity to pay their bills.  Credit card companies make money off of people who can afford to pay several hundred dollars a month in interest charges.  If you only make 500 a month you can not afford to pay 200 in interest.  So their cost of doing business with you is higher.  These cards are issued to make money.  And they make their money off of people paying 12-29% interest on their 5k+ credit limits they have nearly maxed.
"You are correct.  Credit card companies charge the merchant for every transaction.  But the merchant isn't necessarily going to give you discount for paying in cash.  The idea is that by providing more payment options, they increase sales, covering the cost of the transaction fee.  That said, some merchants require a minimum purchase for using a credit card, though this may be against the policies of some issuers in the U.S. (I have no idea about India.) Also correct.  They hope that you'll carry a balance so that they can charge you interest on it.  Some credit cards are setup to charge as many fees as they possibly can.  These are typically those low limit cards that are marketed as ""good"" ways to build up your credit.  Most are basically scams, in the fact that the fees are outrageous. Update regarding minimum purchases: Apparently, Visa is allowing minimum purchase requirements in the U.S. of $10 or less.  However, it seems that MasterCard still does not allow them, for the most part.  Moral of the story: research the credit card issuers' policies.  A further update regarding minimum purchases: In the US, merchants will be allowed to require a minimum purchase of up to $10 for credit card transactions.  (I am guessing that prompted the Visa rule change mentioned above.) More detail can be found here in this answer, along with a link to the text of the bill itself." I don't see why it would be any harder to sell stocks or bonds than it is to sell a CD you may have.  Not to mention for large one time expenditures you can usually cover these with a credit card.  This gives you about a month to move money around to pay your credit card off in a timely manner without incurring a charge. I have had no problem getting a credit limit beyond 4-5 months of expenses for myself on a single card. I can't even think of a household emergency that you can't pay for with a credit card. Job loss situations are not going to require large amounts of money immediately. True catastrophic emergencies (natural disasters, ransoms) however will need fast cash potentially. However in this case the only thing that is good is having cash on hand. As you can't count on ATMs or Bank systems to be functional. Even more serious emergencies such as zombies, the end of world, or anything that involves total economic collapse would require things that are not cash. You would need to invest in things like supplies, shelter, guns and maybe shiny metals that may have value. 1) Every credit card company charges vendors a fee. That's sufficient to make an acceptable profit per charge even if some of that money goes into marketing expenses -- and the cash-back offer is a marketing expense. 2) Many if not most consumers pay interest; probably everyone does so occasionally when we get distracted and miss a payment. 3) The offer encourages you to put more payments on the card -- and in particular on their card -- than you might otherwise. See #1; that increases net income. In most cases, a debit card can be charged like a credit card so there is typically no strict need for a credit card. However, a debit card provides weaker guarantees to the merchant that an arbitrary amount of money will be available. This is for several reasons: As such, there are a few situations where a credit card is required. For example, Amazon requires a credit card for Prime membership, and car rental companies usually require a credit card. The following does not apply to the OP and is provided for reference. Debit cards don't build credit, so if you've never had a credit card or loan before, you'll likely have no credit history at all if you've never had a credit card. This will make it very difficult to get any nontrivially-sized loan. Also, some employers (typically if the job you're applying for involves financial or other highly sensitive information) check credit when hiring, and not having credit puts you at a disadvantage. There are a lot of forces at play here, one of which is addressed in your second bullet point. Housing, transportation, food, and healthcare are pretty much the staple expenses of a modern day human.  While these expenses all have a range from minimum required to function and luxurious all humans incur these costs.  The lower rung wage earners earn an amount closer to their actual costs than higher earners.  As income scales up these expenses typically also scale up with different lifestyle choices.   There reaches a breaking point though where is so much excess to your income that you begin meaningfully spending on investments; you may also begin to take a meaningful portion of your compensation in securities rather than currency.  In times where the economy is booming, folks who hold assets in securities rather than currency really win.  In 2008 people in that highest rung really took a wealth hit (and probably an income hit). Eventually you are going to need some sort of real credit history.  It is possible that you will be able to evade this if you never buy a house, or if you pay cash for any house/condo/car/boat/etc that you buy.  Even employers check credit history these days.  I wouldn't be surprised if some medical professionals such as surgeons check it also.  Obviously if you have a mortgage and car loan this doesn't apply, but I'd be curious how you acquired those unless you have substantial income and/or assets. Combine this with the fact that certain things like renting a car essentially require a credit card (because they need to put a hold on more money than they are actually going to take out of your card, so they can take that money if you don't bring the car back), and I think you should have a credit card unless you and your wife are individuals with zero impulse control, which sounds highly improbable. If your concern is the financial liability of the credit line, just keep the credit line low. What makes a credit card risky is that it requires discipline. It is very easy to buy things that you cannot afford with a credit card. Credit cards usually require a minimum payment every month if you owe them money, but if you pay only the minimum amount, your debt will grow quickly. And since the interest rates are usually very high, you can easily get into a state where you are overwhelmed by your debt. The correct way to use a credit card is to pay the complete bill every month. If you can't afford to pay the complete bill because you spent too much, cut up your credit card.  On the positive side, there are many situations where paying by credit card will give you protection if you don't get the goods that you paid for, because the credit card company is fully responsible for those goods, just like the seller. So if you pay for a $5,000 holiday with a credit card and the company you paid to goes bankrupt, the credit card company will refund your money.  Do not ever look at cash back on purchases. You only get cash back if you spend money. Getting $50 cash back is of no use if you had to get $2,500 deeper in debt to get that cash back. (Some people might contradict this. But if you ask for advice on money.stackexchange then this is the correct advice for you that you should follow). If you are in the U.S., without credit cards, you probably don't have a credit history. Without a credit history, you won't be able to get a loan/mortgage, and even if you do, you'll get it on very unfavorable terms. Depending on where you live you might even have great difficulty renting an apartment. So, the most important reason to have credit cards is to have a good credit score. People have already listed other advantages of having credit cards, but another thing that wasn't mentioned is fraud protection. Credit cards are better protected against fraud than debit cards. You probably shouldn't use debit cards online unless you must. Also, without a credit card or credit history, some simple and important liberties like renting a car while you are travelling might be denied to you. So, in conclusion, it's bizarre, but in modern America you need credit cards, and you need them bad. "This is not a full answer and I have no personal finance experience. But I have a personal story as I did this. As Vicky stated Another point: there are various schemes available to help first time   buyers. By signing up for this, you would exclude yourself from any of   those schemes in the future. I did this for my dad when I was 16 or so. I am in Canada and lost $5,000 first time buyers tax rebate. As long as many other bonuses like using your rsps for your first home. I also am having a fair amount of trouble getting a credit card, because even though I am only a part member of the mortgage they expect you to be able to cover the whole thing. So when the banks look at my income of say $3000 a month they say ""3000 - rent(500) - mortgage(3000)"" You make $-500 a month. I then explain that I do not actually pay the mortage so it is not coming out of my paycheck. They do not care. I am responsible for full payments and they consider it used." A major reason that I can think of is financial security. Most people have reoccurring costs such as housing, car, medical expenses. If you were to put all you money into dept, and live from check to check, than you could be increasing risk of financial loss. Think about what would happen if one were to default on their mortgage? Risk management plays a huge role in personal finance, and a way of preventing financial loss is to have enough money in an accessible place to pay reoccurring costs in the event that ones situation changes unexpectedly. "This is second hand information as I am not a millionaire, but I work with such people everyday and have an understanding of how they handle cash: The wealthy people don't. Simple. Definitely not if they don't have to. Cash is a tool to them that they use only if they get benefit of it being a cash transaction (one of my friends is a re-seller and he gets a 10% discount from suppliers for settling lines using cash). Everything else they place on a line of credit. For people who ""dislike"" credit cards and pay using ATM or debit cards might actually have a very poor understanding of leverage. I assure you, the wealthy people have a very good understanding of it! Frankly, wealthy people pay less for everything, but they deserve it because of the extreme amount of leverage they have built for themselves. Their APRs are low, their credit limits are insanely high, they have longer billing periods and they get spoiled by credit card vendors all the time. For example, when you buy your groceries at Walmart, you pay at least a 4% markup because that's the standardized cost of processing credit cards. Even if you paid in cash! A wealthy person uses his credit card to pay for the same but earns the same percentage amount in cash back, points and what not. I am sure littleadv placed the car purchase on his credit card for similar reasons! The even more wealthy have their groceries shipped to their houses and if they pay cash I won't be surprised if they actually end up paying much less for fresh (organic) vegetables than what equivalent produce at Walmart would get them! I apologize for not being able to provide citations for these points I make as they are personal observations." FICO is a financial services company, whose customers are financial services companies.  Their products are for the benefit of their customers, not consumers. The purpose of the credit score system is two-fold.  First, the credit score is intended to make it easy for lending institutions (FICO's customers) to assess the risk of loans that they make.  This is probably based on science, although the FICO studies and even the FICO score formula are proprietary secrets. The second purpose of the credit score is to incentivize consumers into borrowing money.  And they have done a great job of that.  If you think you might need a loan in the future, perhaps a mortgage or a car loan, you need a credit score.  And the only way to get a credit score is to start borrowing money now that you don't need.   Yes, someone with a good income and a long history of paying utility bills on time would be a great credit risk for a mortgage.  However, that person will have no credit score, and therefore be declared by FICO as a bad credit risk.  On the other hand, someone with a low income, who struggles, but succeeds, to make the minimum payment on their credit card, would have a better credit score.  The advice offered to the first person is start borrowing money now, even though you don't need it. I'm not anti-credit card.  I use a credit card responsibly, paying it off in full every month.  I use it for the convenience.  I don't worry at all about my credit score, but I've been told it is great.  However, there are some people that cannot use a credit card responsibly.  The temptation is too great.  Perhaps they are like problem gamblers, I don't know.  But FICO and the financial services industry have created a system that makes a credit card a necessity in many ways.  These are the people that get hurt in the current system. "Gross income is used because there are a lot of variables inherent in the calculation of a ""net income"", including a lot of things under your direct control that you could use to game the system. ""Net Income"", as others have inferred, is a very flexible term. For the average individual, the definition that would most easily come to mind is likely post-deduction, post-tax earnings; ""take-home pay"". It sounds reasonable, too, as the amount you take home each month can be easily demonstrated with your two most recent pay stubs (which you need to bring in anyway to verify gross earnings). However, even that simplistic definition is fraught with possibility. You have the ability to modify your pre-tax deductions, such as for retirement or healthcare, and that in turn affects your taxes and thus your net take-home pay. To assume that you won't do that is foolish for the loan officer. Other definitions of ""net income"", such as, in the case of shopping for a house, ""disposable income plus current rent"", are the result of even longer lists of deductions from gross pay. Many are also dependent on your current home; your electric bill is a function of the size, location and construction of your current home, all of which will change as soon as you move in. Your other bills, such as telecom (TV/phone/internet) are also more or less location-dependent, as even within a single city or metro area, your choice of services and service providers is dictated by the home's physical location. You may have to pay through the nose right now because your current home isn't serviced by anyone's fiber-optic network, while the home you're moving into could be in a hotly-contested area with access to multiple fiber-optic trunks. So, to simplify all this, mortgage companies simply ask for gross income, then apply a metric that makes relatively conservative assumptions about your spending habits to arrive at a final amount. The upside is simplicity, the downside being that two people both making $60,000/yr may have two completely different financial pictures behind that single number." I had $70K in credit card at one point.  Limited income, starting a business - it's the only credit available. (yes, all paid off now). Here's another way to think about.  Let's assume it is 2011 and we have a married couple who are 25 and make a combined salary of $50,000/yr net.  A suitable first house in their area is $300,000, six times their annual net salary.  Assuming they could scrimp so that 1/2 of take-home went toward saving for their home, they could save enough to buy the house using cash in 12 years, at the age of 37.  Onerous, but they could do it. But now let's allow salaries to increase by 3% a year and homes at 10%/yr, as in your question, and let's run things out for 20 years. Now a 25 year old couple at the same sort of jobs would be making $87,675/yr.  But the houses in that town would be worth not $300k but $1,834,772.  Instead of six times their salary, a house is now nearly 21 times their salary.  This means that if they saved 1/2 of take-home to save up for a house, they could afford to buy the house using cash when they were 67 years old. It gets worse quickly.  If you run it out for just ten more years, to 30 years, a couple would be able to buy the house -- at $4.8 million or 40x a year's salary -- in cash when they were 105 years old.  (Let's hope they ate brown rice). Mortgages can't save them, since even if they could put down ten years' worth of savings on the 2041 house (that'd be 14% down), they'd still carry a $4.1 million mortgage with a $118k annual net salary.