Credit Card Fees & Charges
No one likes paying more than they need to for products and services. Whether you’re splurging on a handwoven rug to bring comfortable karma to your living room, or treating your loved one to a family feast, knowing you’ve got a good deal can release that warm fuzzy feeling within.
Credit cards can get a bad rep, because if you don’t know how to wield them correctly you can get landed with charges and fees that can kill those warm fuzzies. In some cases, they can hurt your credit rating too. So, what do you need to know in order to sidestep unnecessary fees, and where are they unavoidable?
Step inside the cave of enlightenment, where we shall demystify the secrets of credit card fees and charges…
Credit cards and credit score
For now, we’re going to look at the type of fees that can quickly stack up to make your borrowing more expensive and could really take the shine off your credit rating too. For more information, see our guides to understanding credit cards and understanding credit scores.
Fees for credit card mismanagement
These are the fees you have to pay if you mismanage your credit card account. The big ones are late payment fees/default fees and over limit fees. These are the penalty fees that are applied if you fail to pay at least your minimum payment by the due date or go over your credit limit. Yikes…
Make these mistakes and you’ll usually be charged around £12 each time. It’ll also be noted on your credit file. The result? It could be harder for you to get credit in the future because you’ll be seen as less able to manage borrowing effectively. And, if your credit card has a special introductory rate such as a zero percent or low interest offer, your card provider may withdraw the rate, leaving you to pay a much higher rate of interest on your debts. Ouch!
Avoiding credit card fees
So, what’s your best bet when it comes to avoiding charges like this? Clearing your card on time and in full every month is not only the best way to avoid the majority of credit card interest charges. It will also mean you don’t have to fork out for any of these pesky fees. If you can’t afford to pay off the full amount, pay off as much as you can and at least the minimum payment.
Setting up a direct debit for payments will help ensure you never miss a payment and don’t get landed with these unwelcome extras. The amount your lender charges for late/default and over limit fees will be laid out in your credit agreement, so take a peek at this – to be forewarned is to be forearmed. If there’s ever any reason you don’t think you can make your credit card payment in time, you should contact your lender to discuss the problem as soon as you can.
Credit card charges
Credit card charges can include:
- Overseas fees
- Cash advance fees
- Card holder fees
- Transfer fees
Credit card charges come into play when you use your card in a particular way. For a long time, UK consumers have paid surcharge fees for using a credit card on transactions like paying for holidays or booking your wedding venue. From January 13th 2018, companies will only be able to pass on the processing fees of around 2% rather than using the surcharges to profit, so we should see these charges dwindle.
If you’re using your credit card abroad and don’t have a special overseas card, your spending can be subject to extra charges such as foreign transaction and exchange fees. These can significantly increase the cost of each spend even if you’re spending a small amount.
Before you head off on your travels, be sure you know what charges you could be in line for and consider whether applying for a different credit card might be more cost effective. As a general rule, if a retailer asks whether you want to pay in pounds or the local currency, choose the local currency. This way you’ll get the same exchange rate as your card issuer, which is likely to be cheaper than the retailer’s rate for conversion.
Cash advance fees
Most credit cards also charge a cash advance fee for withdrawing cash from an ATM, which tends to be higher than your purchase rate. If you’re using your credit card to withdraw cash abroad, not only will you have to pay this fee plus an exchange fee, but you may also have to pay interest on the amount from the day of withdrawal, even if you clear the balance at the end of the month. If you’re on home soil it works out as an expensive transaction even minus the exchange fee. It’s a practice that’s not viewed favourably by credit reference agencies.
Card holder fees
Some credit card fees and charges are connected with simply being a card holder. Annual fees, monthly fees or dormancy are part of your credit agreement so will need to be taken into account when comparing the total cost of credit cards.
Often these cards may also have perks associated with them such as cashback, so in working out whether the card is worth the annual fee you’ll need to do your sums to calculate your potential earnings are greater than the fee.
Providing they don’t outweigh the benefits of your credit card perks or make your card a more expensive way to borrow in comparison with another product, they shouldn’t be a big deal.
Other fees you’ll be informed about when you open your card are your APR (interest rate). This is likely to be different depending on whether you are making a purchase, transferring a balance onto the card or withdrawing cash (erm, just don’t do that last one, okay?).
If your card is a balance transfer card or money transfer card, handling or transfer fees will usually be applied if you make a transaction in line with the rules laid out in your credit agreement. Some very select cards offer fee-free transfers but most are charged at a few percent of the amount you are moving.
Hopefully you’re now feeling better informed about the different credit card fees and charges that could come into play if you take out your card. Use this wisdom to select a card that matches your needs and your spending style by entering your requirements into our Money Matcher tool.
It’ll conjure up a tailored table and highlight deals you’re more likely to be accepted for, all without a mark being left on your credit file. Plus, you’ll now be able to look out for the fees mentioned above in the credit card summary box, which makes potential charges and fees crystal clear.