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Credit Card Fees: What do You Get Charged for?

2009-04-10

There are many reasons why people apply for credit cards. Some want to have a supplementary source of income and instant access to funds. Others look for a convenient, fast and safe way to pay for goods and services. Yet others get credit cards for prestige reasons. No matter what your reason, owing a credit card is always associated with paying loads of fees, and it does not make a difference whether you are a prime or sub-prime borrower. So let’s have a look at some of the commonly charged credit card fees and situations when you may be charged them.

• Annual maintenance fee. This is a basic type of fee that affects the cost of using a credit card on an annual basis. Though it is charged only once a year, it may be a nuisance for those who are accustomed to saving money in everything. Annual fee may be charged on both premium cards and credit cards for bad and no credit rating. Typically, if you are a prime borrower and a valuable customer for your bank, you may ask the bank to waive the annual fee on your card. Some issuers will automatically waive the fee once you reach a certain amount of spending in a year.

• Application fee. This type of fee is charged when you apply for credit cards. The fee may vary from $10 to $50 per application and may be charged by any card, mostly by secured cards. If you want to avoid paying an application fee, find a card deal that does not charge it.

• Cash advance fee. It is charged by the majority of credit cards when you withdraw cash from them. Typically, you pay 1-3% per cash advance. If you often rely on the cash advance funds, it is worth finding a card that does not charge the advance fee.

• Balance transfer fee is charged when you make a balance transfer from one card to another and usually amounts to 3% of the amount transferred. So, the more you transfer, the more you pay. Keep it in mind as you apply for a balance transfer card and make sure that you can afford paying this additional fee.

• Finance charge. If you carry credit card balances beyond the grace period, you normally pay a finance charge which depends on the balance, your card’s APR, as well as the method of calculating the finance charge. In order to avoid paying a finance charge, you should pay your balance in full before the grace period is over.

Now, let’s review penalty fees that are charged on defaulting customers.

• Late fee is charged when you either pay less than the monthly minimum required or you don’t pay your bill by the payment due date. It is charged by all cards without exception each billing cycle you pay less than the minimum or miss a payment. In order to avoid late payment fee, send your bills on time or call your creditor in advance to make a payment arrangement.

• Over-the-limit fee is charged when your balance exceeds the credit limit. One simple way to avoid it is to keep your balance below the spending limit, preferable below 50% of it.