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Credit cards can be a useful tool for securely paying for purchases and earning valuable perks. Fees, however, can quickly make your experience a losing proposition. Learn about each of the common credit card fees and why you should keep an eye out for them.
What are common credit card fees?
There are more than a dozen types of credit card fees that consumers may be charged in their lifetime. The following are the most common ones that affect today’s consumers.
Basic credit card account fees
Depending on your credit card account, you could find yourself being charged any of these basic account fees that have nothing to do with how you manage your account.
1: Application and processing fees
Did you know that some credit card issuers may charge you simply to apply for their card? While this isn't a widespread tactic, it does exist. Read the card application terms very carefully before hitting that "submit" button. If you're asked for your bank details upfront, you could be subject to this fee. This isn’t as common in the United States, but you’ll need to read the card agreement to see if the fee comes out of your bank upon application or gets added to your card balance upon approval (if approved.)
2: Account setup and program fees
Account setup fees may be charged the first time you open a secured credit card, and it will come off the amount of available credit you have to spend. Program fees vary and may be a few dollars per month to a larger annual amount. It’s possible to avoid these fees by not applying for cards that require them.
3: Annual fees
As an example, airline rewards credit cards, in particular, are known for their annual fees, which are used to offset the cost of perks like free companion airline tickets and complimentary checked bags. Some cards will waive the first year’s annual fee to get you to try their account, so just be sure to cancel before the renewal date if you’re not interested in maintaining a long-term relationship.
Usage fees and how to avoid them
In addition to the above automatic fees, some fees may only occur when you use your card’s features. With that in mind, it pays to compare cards to find the best deal for you.
1: Balance transfer fee
Many credit cards offer balance transfers for new and existing customers. You may see this offered as a 0% or very low rate compared to your current purchase rate. Are these a good deal? It depends on what they charge as a balance transfer fee. Even a 0% interest rate on balance transfers can become very costly when you add on a 3% to 5% fee.
Remember that balance transfer fees are charged at the time of the transfer, for the entire amount of the transfer. That means a 4% balance transfer fee on $1,000 will cost you $40 on your very first statement. If you’re not sure that you’ll pay at least $40 in interest charges in the time it takes you to pay down that $1,000, a transfer may not be a wise move.
2: Cash advance fee
Almost anytime you use your credit card to access cash, such as at an ATM, you’ll pay this fee. Some cards may waive the fees on a set number a month, however, and others will let you get additional cash back with purchase at certain retailers for no additional charge. Overdraft protection and convenience checks may also be charged as cash advances, but some card companies treat convenience checks as balance transfers. Cash advance fees can be very high and have a minimum charge for every transaction. Don’t forget that this fee is in addition to the higher annual percentage rate you’ll pay for getting cash.
3: Finance charge
These charges get applied to your card balance after any grace period, usually when the billing cycle closes. To keep from having to pay them, pay your card in full before the due date every month. You’ll know what finance charges will cost by checking your card’s annual percentage rate (APR).
Look out for promo rates that expire after a time. If you still have a balance to pay off when this special lower rate expires, you’ll be charged your standard finance charge rate on whatever amount remains outstanding on your card.
4: Foreign transaction fee
Those traveling outside of the country are most likely to be hit with this fee. A rate of 1% to 5% is common for overseas purchases or things you buy in a currency that’s different from your own. Many cards, especially those geared toward travelers, skip this fee entirely. If you’re planning on globetrotting anytime soon, check out your card’s terms to potentially avoid paying this fee.
5: Credit limit increase fee
Some cards will raise your credit limit automatically when you prove you can manage your card in a responsible way. Others require you to formally request a limit increase, but be aware that this could cost you. Cards can tack on a fee based on the amount of the increase, or a flat fee may be assessed simply for asking. Check your card terms for this charge before you try to boost your credit line.
