Merchant category codes, or MCC’s, are often overlooked – in fact, not many consumers even know they exist. Essentially, merchant category codes are 4-digit numbers that credit card networks – such as VISA, MasterCard, American Express and Discover – assign to businesses in order to classify them into certain industries. Because these codes are based upon the types of goods and/or services a merchant provides, they can range from industries as broad as “groceries” and “fuel” to those as specific as “wig and toupee stores.”
Though MCC’s were originally created by card networks to assist the IRS in tax reporting, they have since been used for other purposes, such as assisting the networks in determining interchange fees (as networks charge less in certain industries than others). However, from a consumer’s perspective, merchant category codes are most important as they pertain to credit card rewards. Many credit cards provide different rewards earning rates for purchases made in different spending categories – such as gas, groceries or dining – which makes the way a given merchant is classified very important. For instance, if you have a credit card that offers extra rewards on purchases made at grocery stores but your local Walmart is classified as a department store, you won’t be earning the bonus perks you might assume you’re getting.