Understanding Credit Card Fees & Tips on how to Avoid these Fees
When applying for a credit card, it is important to fully understand the fees that you will be charged and how you can avoid these fees by carefully managing your account.
Here are some common credit card fees and tips on how to avoid them:
Annual or Monthly Fee
This fee is common on charge cards, rewards and airline miles credit cards and on secured and subprime cards. The fee is sometimes applied if you do not use your card at least a few times during the year.
TIP – If you are thinking about getting a rewards or airlines miles card, make sure that the card’s benefits are worth the cost of an annual fee. Consider the overall value when comparing fee and no-fee cards.
Application Processing Fee
This fee is charged on many subprime cards and some secured cards when an account is opened.
TIP - Required fees in the first year cannot total more than 25% of the credit limit. For example, if your initial credit limit is $300 then the fees for the first year cannot be more than $75.
Balance Transfer Fee
Charged for transferring a balance from one card to another, this fee is commonly assessed as a percentage of the balance transferred.
TIP - When you apply for a new card, ask about balance transfer fees. Most companies do not charge these fees to new cardholders for the first month or two.
Bounced Check or Returned Item Fee
This fee is charged if your check bounces.
TIP – Make sure you have sufficient funds in your bank account to cover your checks.
Cash Advance Fee
This fee is charged as a percentage of the cash advance, with minimum charges.
TIP – Cash advances are an expensive way to get cash. Not only do you pay a fee, but the interest on the cash advance balance begins to accrue immediately. To avoid this fee, use your ATM or debit card to withdraw cash from your checking or savings account at ATMs.
Foreign Transaction Fee
Charged when you make purchases overseas that are cleared through a non-U.S.-based bank and the charges have to be converted to U.S. dollars.
TIP – If you plan to use a credit card while traveling outside of the U.S., shop around to find a card with a currency conversion method that is favorable.
Inactivity Fee
This fee is charged when you do not use your credit card for extended periods of time.
TIP – Use your card a few times per year to avoid this fee. Pay these transactions in full when you get your bill, so you do not accumulate a balance.
Late Fee
Charged if your payment is late, sometimes even if it is received on the due date after a certain hour. In addition to charging a late fee, the interest rate on your existing balance may be raised substantially if you make a payment that is more than 60 days late. New regulations (February 2010) require that due dates now fall on the same day every month and payments received before 5 p.m. on the due date cannot be considered late. If the due date falls on a non-business day, such as a Sunday or a holiday, and your issuer does not accept and process payments on that day, you have until 5 p.m. the following business day to make your payment without penalty. Many issuers process payments on weekends and holidays.
TIP – Always pay your bill on time. If you send your payment by mail, allow at least seven days for the payment to reach your issuer. Consider other methods of payment, such as online bill pay, pay-by-phone or automatic payments. Set up an email reminder to ensure you pay your fees on time.
Over-The-Credit-Limit Fee
You can be charged an over limit fee only if you give your issuer permission to allow you to exceed your credit limit.
TIP – Manage your credit limit carefully and call your card issuer in advance if you need an increase. Also, ask your issuer if it has free email service that will alert you when you are approaching your credit limit.
Payment Fees
Charged by some companies to pay your bill at the last minute with the help of a customer service representative.
TIP – Avoid last minute, fee-based payment methods. Look for online bill pay, pay-by-phone or automatic payments that do not carry a fee.
Statement Copy Fee
This fee is charged for extra copies of monthly bank statements.
TIP -File statements for the past three years in a secure location for income tax purposes. If you sign up for online access to your accounts, you can download also your statements and keep them saved on your computer.
Stop Payment Fee
Charged when you stop payment on a credit card convenience check.
TIP – Be cautious about using convenience checks. If you write one and it is lost, you may not be able to avoid this fee.
Wire Transfer Fee
This fee is charged when you use your card to transfer money or when you buy money orders, lottery tickets or casino gaming chips.
TIP -Pay for these services with a personal check or cash.
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