Before you finalize that credit card application, stop to read the fine print. Remember, credit card companies are businesses first and foremost. No matter how customer-friendly they are, their prime objective is to make a profit. Part of the way they do that is through fees.
Does your credit card charge any fees you don’t know about? The answer may be hidden deep within the fine print of your agreement. When applying for a new card, or using one you already have, make sure you know which hidden fees to watch for and train yourself to avoid the unpleasantness of unexpected charges.
In 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act capped or eliminated certain fees credit card companies commonly charged. As a result, credit card companies lost revenue. In some cases, they raised or added fees in order to recoup the lost dollars.
As a consumer, you are protected against exorbitant and hidden credit card fees. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 mandates that credit card companies change their fee structures and clear up their reporting practices. For example, under CARD, credit card companies can no longer charge a fee when you exceed the credit limit on your card; CARD also reduced the penalty for late fees and stopped companies from suddenly raising your interest rate, except in specific circumstances.
Your best protection from hidden fees is to become an educated consumer and read your credit card agreement carefully. Here are some common hidden fees to look out for:
Balance transfer fee: Balance transfer cards can save you hundreds, even thousands of dollars in interest. However, a high transfer fee can make that 0% introductory APR less of a savings. Balance transfer fees can range from 3%-5% of the amount of the transfer, while some cards may waive it all together.
When considering signing up for one of these tempting offers, be sure to read the fine print – even call the company to ask about offers with a lower fee. It might be worth it to go up a point or two on the introductory interest rate if you can land significant savings on the transfer fee, particularly if your credit is not good enough to qualify for a card with no transfer fee.
Cash Advance Fee: Most credit cards charge a fee for cash advances. It might be a percentage of the amount of money you are withdrawing, such as 2%-4%, or it could be a flat charge.
Additionally, cash advances are often subject to a higher interest rate than purchases. If you plan on using cash advances, investigate how the credit card issuer credits a minimum payment. In some cases, minimum payments are applied to purchases first, so high-interest cash advances sit in your balance longer, costing you money. Fortunately for consumers, the CARD act now mandates that any payment amount above the minimum must go towards the highest interest rate balance. So if you’re using cash advances, be sure they are getting paid off in full each month.
Cash advances are not a good idea in general. If you find yourself using them regularly, explore other avenues to get the cash you need, such as a personal loan or line of credit from your bank.
Foreign Transaction Fee or Conversion Fee: Many credit card companies charge a fee for transactions performed abroad, usually 2%-3% of your total purchase. This is to cover the cost of converting foreign currency to U.S. dollars. In some cases, credit card companies even charge a conversion fee for purchases made online from foreign merchants. If you’re a frequent international traveler, be sure to find a card that waives this fee.
According to a May, 2012 article in Time Business & Money, more and more credit card companies are dropping foreign transaction fees. While some cards aimed at frequent travelers may carry an annual fee, the conversion fee savings and great travel rewards can be worth it. Here are just a few cards with zero foreign transaction fees:
Closure fee: Credit card issuers can charge a fee for closing the account. If there is a closure fee, call the customer service line to see if you can negotiate it down or eliminate it. You should also consider whether closing a credit card is in your best interest. Canceling one, especially one you’ve had for a long time, can end up hurting your credit rating. It’s often better to just keep the account open and not use it.
Inactivity fees: Watch out. Some cards charge a fee if you don’t use the card for a certain period of time or fail to reach a set annual spending limit. Some cards waive annual or inactivity fees for the first year, then implement them every year after that. Once again, read your agreement thoroughly or ask a customer service rep so you understand any minimum purchasing amounts or fees associated with card inactivity.
Late fee: CARD capped late fees to keep credit card companies from overcharging their customers. Late fees are commonly $25 for a first late payment, and $35 for a second infraction. Late fees cannot exceed the minimum payment due. Card companies also can no longer abruptly raise your APR after a single late payment. You must be 60 days late before a card issuer can increase your interest rate, and they must inform you in writing of the rate hike beforehand.
The best way to avoid late fees is to always pay your bill on time. CARD mandates you have until 5:00 p.m. on your due date to pay your bill. But payments that are even one minute late can incur a fee. Enrolling in an online bill payment program that allows you to set up automatic payments will help you keep track of bills and due dates. This ensures your payments are credited on time, even if the credit card company changes its address or something gets lost in the mail.
Finding a credit card with absolutely no fees is probably unrealistic. However, doing your research before you get a new credit card will help you understand all of the fees associated with the card you choose, how much they are, and when they will be applied.
Fees are only hidden if you don’t know about them. Even if the text is small, all potential fees will be included in your credit card agreement. So whether or not you end up surprised by fees is on you. Use your card wisely, make on-time payments, and avoid behaviors that incur fees.
Pick and choose among available credit cards so you get the one that best suits your needs. For example, if you travel outside the U.S. on business several times a year, a card without foreign transactions could save you hundreds annually.
A Smart Consumer Saves on Fees
By law, credit card issuers are required to disclose fees and the methods used to calculate them in your agreement and sometimes on the back of your billing statement. Read all documents from your credit card company carefully. If you don’t understand something, pick up the phone and call the customer service department. Getting a little extra information can save you a lot of money and frustration in the future.