If you own a credit card or have considered opening a credit card account, you’ve probably been warned about hidden costs and credit card fees. And to be fair, the fees can be confusing, misleading, annoying, and expensive. But if you read the fine print of your credit card fees and use your card effectively, you can better avoid these annoying and expensive costs.
Whether you’re a brand-new card owner or someone who regularly uses credit cards, chances are you don’t know everything there is to know about credit card fees. In this article, we’ll cover the most common credit card fees, as well as their costs and when they pertain, so you can avoid annoying fees, save money, and make the most of your credit card.
Basic Credit Card Fees
Every credit card offer comes with a basic fee structure that impacts all account holders, regardless of how you use your credit card. Here are some basic credit card account fees you’ll see.
A request fee is a fee charged to people requesting a credit card. It’s an administrative charge that covers the cost of evaluating your credit card request. It’s important to know that most credit card companies no longer charge customers this unless they have bad or damaged credit.
The Account Set-Up fee is like the Request fee in the sense that it’s an initial charge for being a credit cardholder. It’s generally a one-time fee that comes when you’re first setting up a credit card, and it covers the general benefits of being a cardholder.
The annual fee is the membership you pay for being a credit card holder. These credit card fees cover things like account maintenance, customer service, and the card’s reward programs. These costs are very common on travel credit cards, which often offer greater signup bonuses and better rewards than a standard cash back card.
How or when you use your credit card is irrelevant to this annual fee, as you pay it simply to keep your credit card open and active. Most credit card companies generally waive this fee for the first year.
If you’re considering a credit card with an annual fee, you should consider how often you plan on using the card. If you plan on using it often and it has great rewards, the card is probably worth it. If you’re hoping to only use it during the no-fee year and then plan on closing it, you shouldn’t open the card. Most credit card companies will simply charge you the fee, and canceling a credit card can negatively impact your credit card score.
Usage Credit Card Fees
While the fees above pertain to most credit cardholders, there are other fees that arise depending on card usage. Here are some common usage credit card fees to know, so you can try avoiding them when possible.
Foreign Transaction Fees
Foreign transaction fees occur when you use your card while abroad or buy from a company that’s based internationally. This fee is generally a 2-4% surcharge that’s added to all your credit card transactions. It’s important to know, however, that some credit cards, such as travel credit cards, will not charge you foreign transaction fees.
Balance Transfer Fee
A balance transfer fee is a credit card fee that happens when you move debt from one credit card to a different one. This cost is generally 3-5% of the amount transferred. Before you transfer between cards, consider the introductory interest rate on the card and how long it’s in effect, as well as any fees that it charges.
Cash Advance Fee
A cash advance fee occurs when you borrow cash against your credit card. Many cards will charge you a fee of 2-5% of what is borrowed, but it can cost even more than that as ATM fees may exist. So if you plan on taking out cash to cover an emergency expense, you should try to pull it from your savings account to avoid these extra costs.
Credit Card Insurance Fee
Credit Card insurance fees occur if you’ve signed up for credit card payment insurance, which some people sign up for if they’re worried they won’t be able to afford credit card payments.
If you want this insurance, you generally have to pay a monthly fee that’s equal to a certain percentage of your balance. This can be quite expensive, so like cash advance fees, it’s best to try to pull from a savings account or avoid signing up for a credit card instead of doing this.
Penalty Credit Card Fees
Perhaps the most annoying fees associated with credit cards are the ones that come from using your card incorrectly. Here are some common penalties associated with credit card usage, and how to avoid them.
Late Payment Fees
This charge is incurred when you pay your monthly credit card payment after the due date. This fee cannot be greater than your monthly minimum payment, and you can generally get it waived if it’s your first offense. It’s important to know that beyond fees, making late payments can also negatively impact your credit score, or make you potentially lose credit card rewards for that cycle.
This fee occurs when your credit card balance is greater than your approved credit line. If you want to avoid this fee, stay under your credit card limit or try to extend your credit line. And if you’re constantly maxing out on your credit card, try to reign in your spending.
Final Thoughts on Credit Card Fees
Credit cards are a great way to build credit history, earn rewards, and pay for things you can’t afford upfront. And while credit card fees are annoying, you can avoid them, or at the very least account for them by educating yourself on them. With the fee breakdown in this article, you’ll be able to avoid unnecessary costs and make the most of your credit card.
Are you looking for a new credit card? Have any more questions about fees? Let us know in the comments!