Do credit cards have fees?
You can’t understand how a credit card works without learning about the fees associated with it. Some credit cards have more fees than others, but they all have some sort of carrying costs. The most common credit card fees include:
- - Annual Fee:
- This is money that you have to pay every year for using a credit card. It could be $0, or it could be $250+. It just depends on the card you get.
- – Application Fee:
- This is a fee you may have to pay to apply for a card. This is mostly for cards with extensive rewards programs, and it is used to cover the time and money spent checking your credit.
- – APR:
- This is the annual percentage rate, or the amount of interest that is charged on a balance over the course of a year. If you pay back your balance within a certain time frame (usually 25-30 days), you can avoid this charge. Since this is an annual rate, it represents the interest paid in all the months combined. To calculate the interest for an individual time frame, simply divide your rate by the number of days or months in question. (A monthly percentage rate would be approximately 1/12 of the APR)
- – Balance transfer Fee:
- This is a fee you pay if you move the balance of your card to another card. Most people will do this to combine the debt from several cards into one, thereby having fewer bills to pay. In most cases, this is 1-3% of the balance.
- – Cash Advance Fee:
- This is a fee that you have to pay when you withdraw money from the card at an ATM. It is usually around 2% of the money withdrawn.
- – Decline Fee:
- This fee is charged to your account when you try to make a payment on something you do not have the money for. It is similar to the return check fee a bank may charge if a check bounces on your account. It can be as much as $35, but some credit cards will not ask for this.
- – Foreign Transaction Fee:
- This fee shows up when you buy something overseas. It is used to cover the cost of transferring your money into foreign currency. Not all credit cards have this.
- – Late Fee:
- This is a fee charged to you in the event that you do not make your payments on time. It is usually $10-$25, and it will be considered part of your minimum credit card payment.
- – Over-the-limit Fee:
- This is a charge for times when you go over your maximum credit card limit. If your account has only been approved for $750, a balance of $800 would lead to an over-the-limit fee. This will vary in value by credit card, but most of the time it is around $30.
Note that not all cards carry all of these fees. In fact, some cards have absolutely no fees at all. You may also see “other fees” or “miscellaneous fees” on your credit card statements. These are terms used to cover any extra costs associated with the card. They could be anything from payment for customer support to charges for identity theft insurance. You will have to ask your credit card provider for more information about the fees on your account.
Let’s pretend that you have a credit card with a $1,500 balance on it. Your card gives you up to 25 days to make a payment without any penalties or fees. It is now 34 days since the bill was due.