Credit cards provide a convenient way to make day-to-day purchases, but their use can create a financial burden even if you don't allow credit card debt to pile up. Credit card companies charge high interest rates on balances, but they also impose a variety of fees that can cost you money each month even if you don't carry a balance.
Some credit card companies charge you a fee right off the bat simply for applying for credit. It costs credit card companies time and money to perform credit checks and decide whether to approve new customers. An application fee is a way that credit card companies can mitigate this cost.
Late Payment Fee
Any time you carry a balance on a credit card, you must make the minimum payment by the monthly due date to avoid a late payment fee. According to Bankrate.com, as of April 2010 a first transgression could result in a maximum late fee of $25, while further late payments could result in fees of up to $35. Federal law prohibits late fees that exceed the minimum required payment on a credit card. For example, if you are only required to pay $15, the maximum late payment fee is $15.
Cash Advance Fee
While the purpose of a credit card is to be able to make purchases without carrying cash, cash is necessary for certain types of purchases. Credit card companies allow cardholders to withdraw cash from ATMs, but they usually impose cash advance fees. A cash advance fee can be a flat fee of a few dollars or a percentage fee based on the amount of cash withdrawn. In addition, credit card companies may charge higher interest rates on cash advances.
Annual Account Fee
Some credit card companies charge an annual account fee simply for having an account open. Such fees are unavoidable, even if you use a card responsibly. Cards with annual fees sometimes carry special benefits like low interest rates or rewards programs that can make them worthwhile for certain customers.
Foreign Transaction Fee
Credit cards can be especially convenient when traveling abroad because you don't have to carry foreign currency to make purchases. On the downside, credit card companies may tack on a foreign transaction fee for purchases you make abroad. Foreign transaction fees typically amount to 2 percent or 3 percent of the total amount spent.
Credit Limit Fee
If you accumulate a high balance on your credit card, you run the risk of going over your credit limit. Spending beyond your specified credit limit can result in an over-the-limit fee. The Credit Card Accountability, Responsibility and Disclosure Act, which went into effect in August 2010, set the maximum over-the-limit fee at $25 for the first transgression and $35 for a subsequent violation in the next six billing cycles. Fees may not exceed the amount of the overage.
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