Credit cards are a common part of the American spending culture. Consumers generally recognize that card usage results in interest expenses, but may not realize that several other types of direct and indirect fees can make credit cards more expensive to use. Understanding the total expense of a credit card use may cause some consumers to rethink borrowing habits. Cautious use of cards for rare emergency needs may earn rewards benefits and provide some value.
The most common, significant and recognized costs of using credit cards are the finance fees paid to lenders. Each month that you carry a balance beyond the initial purchase grace period, you owe interest. Monthly finance charges may be in the hundreds if you carry thousands of dollars in debt. Balance transfers and cash advances also have fees, which are often higher than typical rates on purchases.
You may have to pay an upfront application fee, ranging from $30 to $100 or more, when you apply for a card, especially if you have no credit or only an average credit score. Even when application fees are waived, you may face annual membership charges, which also commonly range from $30 to $100. Some providers waive these membership fees each year if you use the card, maintain minimum balances or meet other prescribed usage requirements. Other fees include late payment fees, often $35 to $50, when you don't make a minimum payment by the deadline, over-the-limit fees when you exceed your available balance and returned payment fees you make a card payment that is not paid by your bank. Foreign currency transaction fees may result when you use a card to make purchases outside the United States.
Other fees result from actual usage patterns or activities. When you use a credit card to pay for such things as taxes or motor vehicle renewals, you normally pay a convenience or processing fee to the agency. This is usually because the agency pays a third-party processor for the credit card transaction. You can avoid these fees by using a checking account or automatic debit transaction for such payments. Because these fees aren't indicated in your card agreement, you need to watch for them when completing transactions.
As part of a settlement between credit card providers and merchants, consumers may be charged a transaction surcharge of 1.5 to 3.5 percent, as of January 2013. Merchants who commonly transact small purchases of nominal amounts often express concern about the per transaction fees charged by providers. The surcharge allows merchants to pass these transaction fees on to consumers. Although implementation of these surcharges has been minimal as retailers generally prefer to avoid upsetting customers, to avoid these, ask before purchasing if -- and how much -- a retailer will add in surcharges.
- Visa: Merchant Surcharging –- Understanding Payment Card Changes
- CNN Money: Using a Credit Card? Watch Out for the 'Checkout Fee'
- The Salt Lake Tribune: Paying Your Taxes by Credit Card? Beware the Fees
- Federal Reserve: Credit Cards: Fees
- Bankrate.com: Credit Card Fees and Penalties FAQs
- Bankrate.com: Credit Application Fees Could Soar
- Bank of America. "What is a Credit Card Cash Advance?" Accessed March 6, 2020.
- Consumer Financial Protection Bureau. "What is a Grace Period for a Credit Card?" Accessed March 6, 2020.
- Consumer Financial Protection Bureau. "Ask CFPB: I Paid My Bill on Time Last Month and Still Was Charged a Late Fee. How Can That Be?" Accessed March 6, 2020.
- Consumer Financial Protection Bureau. "CARD Act Report." See Page 94. Accessed March 6, 2020.
- Federal Register. "Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA, and Qualified Mortgages)." Accessed March 6, 2020.
- Consumer Financial Protection Bureau. "§ 1026.52 Limitations on Fees." See (b) Limitations on Penalty Fees, Section (i) Paragraph (B). Accessed March 6, 2020.
- Consumer Financial Protection Bureau. "§ 1026.56 Requirements for Over-the-Limit Transactions." Accessed March 6, 2020.
- Office of the Comptroller of the Currency. "Answers About Credit Card Fees - Can the Bank Charge Me an Over-the-Limit Fee?" Accessed March 6, 2020.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.