Though a credit card offer might boast the credit card is free, many credit cards come with hidden fees that increase the cost of having credit. If you want to avoid paying anything for using your credit card, you’ll have to use it just right – too much or even too little can be costly.
The annual fee is a common credit card fee that you pay simply for having the credit card open. Not all credit cards have annual fees, but they could become more common now that the new credit card rules are in effect. Some credit cards charge a flat annual fee no matter what. Others charge a fee only if you fail to make a certain amount of purchases in a year.
You pay finance charges on your credit card anytime your interest rate is above 0% and you carry a balance beyond the grace period. Your grace period is the amount of time you have to pay off new purchases before you get charged interest. It’s usually 20-25 days, but you might not have a grace period on new purchases if you had a credit card balance on the last statement closing date. You can avoid finance charges by paying off your credit card balance in full each month.
A late fee is typically charged whenever the credit card issuer receives your payment after the due date. You can be charged a late fee if your payment is less than the minimum, even if it’s paid by the due date. Some credit card issuers charge a flat late fee, like $39, while others have tiered late fees that are based on your credit card balance. For example, your late fee might be $10 if your balance is less than $500, but $25 if your balance is above $501.
Credit limit fees
As of February 22, 2010, your credit card issuer has to ask you if you want them to process transactions that would put you over the credit limit. You can choose not to opt-in to over-the-limit transactions and any purchase that exceeds your available credit would be declined. Otherwise, the transaction would go through and you’d be charged a fee for being over your credit limit.
If you thought you could avoid credit card fees by leaving your credit card in your wallet, you were wrong. At least one credit card issuer, Fifth Third Bank, has been caught charging cardholders a dormancy fee for not using their credit cards within 12 months. If your credit card issuer charges a fee like this, make a small charge on it every two to three months to keep it active and open.
Currency conversion fee
Going on a trip overseas? While your credit card issuer brags that your card will be accepted all over the world, they fail to tell you that you’ll pay a fee for using your credit card outside the country. International transactions will trigger a currency conversion fee between 1% and 5% of your transaction.
This certainly isn’t a definitive list of all the credit card fees that are out there. Read your terms and conditions (yes, the dreaded fine print) to get more details about the fees associated with your credit card. By law, your card issuer should warn you about any new fees and give you the opportunity to reject them. Typically, having a better credit score helps you qualify for the lowest-cost credit cards. Improve your credit score and you’ll save money on your credit cards.