How Much Does a Credit Card Cost? Credit Card Fees Explained

John Ganotis

John Ganotis

Updated Jul 05, 2018

A credit card can be very expensive or save you money, depending on the card you choose and how you choose to use it. It’s possible to avoid fees completely, but if you don’t pay in full your credit card issuer will eventually charge you interest or late fees.

This page explains the different fees you may find on a credit card, and how to avoid them. These fees are mostly in alphabetical order, except for the first one:

Interest Fees (Finance Charges)

  • The fee a credit card issuer charges for borrowing money when you carry a balance from one month to the next (for example, if you only pay the minimum payment)
  • Even though you can avoid finance charges completely with most cards, the cost of interest can add up quickly and bury people in credit card debt
  • Interest charges are calculated based on the APR of your card (we explain APRs more later on this page)
  • This fee is the main way most credit card issuers make money, since many credit card users don’t pay in full each month
  • Banks generally give higher interest rates (APRs) to riskier borrowers, to mitigate risk against customers who default

Avoiding the fee: Pay your entire statement balance by the due date each billing cycle. Read this guide to learn more about when credit card issuers start charging interest fees: How Paying a Credit Card Works

Annual Fee

  • There are many credit cards available with no annual fee
  • For cards that have an annual fee, it’s usually in the $30–600 range
  • Annual fees are common on cards that offer premium benefits, like airport lounge access
  • Some cards with annual fees earn rewards at a higher rate than non-fee cards
  • Even with an annual fee, a card can be a good value if the benefits you get and rewards you earn outweigh the cost of the card

Avoiding the fee: You can avoid an annual fee by choosing a card that doesn’t have an annual fee. Or, once you have a card, you may be able to have an annual fee waived by simply asking your credit card issuer. They may issue you a credit for some or all of the fee to keep you as a customer. There are certain other situations where you credit card issuers will waive an annual fee. For example, American Express waives annual fees for all active duty military personnel and their spouses.

Balance Transfer Fee

  • When you pay one credit card with another credit card, or transfer debt from one card to another, that’s called a balance transfer
  • Usually, this fee will be the greater of a flat fee or percentage of the balance transferred. For example, your card terms may explain this fee as: Either $5 or 3% of the amount of each transfer, whichever is greater.
  • Some cards designed for balance transfers will waive the fee if the balance is transferred during a certain time period after opening the account
  • The balance transfer fee is separate from finance charges you may incur when a transferred balance accrues interest

Avoiding the fee: You will only be charged a balance transfer fee if you transfer a balance to a credit card, so as long as you don’t transfer a balance to a card you’ll avoid that fee. If you do want to transfer a balance, you may be able to find a card that has no balance transfer fee or waives the fee under certain conditions.

Cash Advance Fee

  • If you borrow cash from a credit card, by using it at an ATM or otherwise, you’ll almost always pay a cash advance fee
  • This fee will usually be the greater of a flat fee or percentage that you borrow. For example, your card terms may explain this fee as: Either $10 or 5% of the amount of each transaction, whichever is greater.
  • We don’t recommend cash advances because they’re expensive and can show your bank that you’re being irresponsible with money

Avoiding the fee: Don’t borrow cash with a credit card.

Foreign Transaction Fee

  • Some cards add a fee when you make a purchase in a foreign country or in a currency other than USD
  • Many cards, especially travel-focused cards, don’t have this fee
  • For cards that charge a foreign transaction fee, it’s usually around 3%
  • This is sometimes called a Foreign Currency Exchange Fee instead

Avoiding the fee: Choose a card with no foreign transaction fees, or don’t use a card with a foreign transaction fee for purchases outside the United States or in a currency other than USD.

Late Payment Fee

  • Most banks charge a late payment fee when the minimum payment is not paid by the due date
  • Some banks waive the first late fee, or don’t charge late fees at all
  • If you accidentally paid late, call your credit card issuer and ask if they’ll waive the fee. If you haven’t paid late in the past, they may credit the fee back to your account.
  • A late payment fee does not mean a late payment will show up on your credit reports
  • If you continue to pay late, your credit card issuer may charge an additional late fee on every billing cycle when a payment is past due

Avoiding the fee: Pay at least the minimum due by the due date, every billing cycle.

Over-the-Limit Fee

  • Your issuer may charge this fee if you make a purchase that results in a balance (debt) greater than your credit limit
  • Unlike many fees, you need to opt in to this fee. If you want to be able to exceed your credit limit, you need to tell your credit card issuer. Otherwise, they’ll simply deny the transaction that would put you over the limit.
  • Legally, the fee can’t be higher than the amount you went over your credit limit
  • Maxing out your credit cards or going over your limit can be quickly drop your credit scores due to high revolving utilization

Avoiding the fee: Don’t opt in to this fee, or if you do, don’t exceed your credit limit.

Returned Payment Fee

  • Credit card issuers charge this fee when your payment can’t be processed and is returned by your bank (for example, if you write a check and there is not enough money in your checking account to cover the amount)

Avoiding the fee: Make sure you accurately enter payment information when you pay your card, and that there is plenty of money in the account you’re using to pay your bill.

What does APR mean?

The APR, or Annual Percentage Rate, is similar to an interest rate of your card. It’s used to calculate finance charges when you don’t pay your credit card bill in full.

When you borrow money, a lender will typically charge interest. Interest is a fee for borrowing money. The fee is usually a percentage of the money you borrow, known as the interest rate.

For example, if you borrow $1,000 at a 20% interest rate, you would owe the lender $1200. The principal, or amount you borrowed, is $1,000, and the interest fee is $200, which is 20% of the amount you borrowed, so the total you owe is $1,200.

While an APR is not an actual fee, it’s a number that’s used to calculate other fees. With most cards, you can avoid interest completely by paying your full statement balance by the due date every month. So, the APR only matters if you’re carrying a balance, which we do not recommend. There are several APRs you’ll find on a credit card:

Purchase APR

  • The rate for regular purchases, like when you buy groceries with your credit card at a store
  • Most credit cards will give a grace period on new purchases as long as the statement is paid in full each billing cycle
  • If you carried a balance over from last billing cycle, new purchases may start accruing interest at the Purchase APR immediately
  • Some cards have a 0% introductory APR on purchases
  • Purchase APRs range widely, depending on creditworthiness, and are usually in the 8–25% range

Balance Transfer APR

  • The rate you’ll pay on any balances (credit card debt) you transfer a from another credit card
  • Usually, interest starts accruing immediately at this rate when a balance is transferred to a card, with no grace period
  • When you transfer a balance to a card, you may also be charged a separate fee per transfer (discussed above)
  • Some cards have a 0% introductory APR on balance transfers
  • Balance Transfer APRs range widely, depending on creditworthiness, and are usually in the 8–25% range

Cash Advance APR

  • The rate you’ll pay on cash advances
  • Usually, interest starts accruing immediately at this rate when you borrow cash, with no grace period
  • When you borrow a cash on a credit card account, you’ll probably also be charged a separate fee per cash advance (discussed above)
  • It’s very rare to find a card with a 0% introductory offer on cash advances
  • Cash advance APRs around 25% are not uncommon

Penalty APR

  • When you do something irresponsible on your account, like miss a payment by over 60 days, the credit card issuer may change your APR to a penalty APR
  • Not all credit cards have a penalty APR, but your credit card issuer could still change your APR on new balances as long as they give you advance notice
  • You may be able to get rid of the Penalty APR by paying all your cards on time and using cards responsibly, then asking your issuer to lower the APR

Did we miss any fees? Do you have any questions? Let us know with the Ask button in the top right corner, or contact us here.

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