by Amy Lillard
Credit and credit cards are an integral part of our economic system today. But there is a lot of misinformation and misunderstandings about credit. In this continuing series, we examine key concepts, tips and best practices when it comes to credit cards.
(11/8/2012)Many consumers have credit cards. But most don't fully understand their cards, and all the fees that credit card companies can and do charge.
What kind of fees do credit card owners need to be aware of?
Annual fee. This is a yearly fee charged for the convenience of having a credit card. Typical annual fees can vary from $25 to $300 a year, and may only be charged in the first year.
Application fee. Some credit cards charge a nominal fee to apply.
Cash advance fee. Some credit cards allow you to withdraw cash like a bank debit card, and simply add it to your balance to pay back. For this action, most cards charge a cash advance fee which is usually a few percentage points of the advance.
Balance transfer fee. Many credit cards allow you to transfer balances from other cards, often at low introductory interest rates. Cards can also charge a fee for the balance transfer, usually up to 3% of the amount.
Finance charge. If you carry a balance beyond the card's grace period, credit card companies will charge monthly interest. This finance charge will vary by card, and depend on the prime lending rate, the balance, and the company's method of calculating finance charges.
Late fee. Paying after the due date, or paying less than the minimum payment, can result in a late fee. Companies typically charge a flat late fee of $25 to $35, but may also subsequently raise your interest rate.
Over-the-limit fee. If you spend beyond the limit imposed by the credit card, you can incur a fee of up to $35.
Insufficient funds or returned check fee. If a payment towards your card is rejected by the bank for insufficient funds, you can be hit with a fee of up to $35.
Foreign transaction fee. If you use your card to make purchases in a foreign currency, whether shopping online or in another country, you may be charged a fee of 2-4% of the transaction.
Rewards fees. Some credit cards are associated with rewards programs, offering airline miles, gift cards, or a number of other options. While these are earned by purchases or transfers, they may not be entirely free. Some companies will charge up to $50 for cashing in rewards.
Credit card companies can recoup money through the myriad of fees listed here, and even more obscure fees that may be unique to the company. The best way to understand what you're being charged and when is to carefully review your credit card statement and user agreements.
For Additional Reading:
Understanding Credit Card Fees:
Credit Card Processing Fees and Rates:
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