When it comes to credit card rates and fees, many of us are in the dark. We know that we have to pay an interest rate on money we borrow, and we know that we sometimes pay fees for credit card services – and that’s about it. So what do all of those little payments really add up to?
How credit cards work
Before you understand the fees associated with credit cards, you need to understand the business and the industry. If you’re looking for a short, easy to read overview of what credit cards are all about, I suggest browsing Credit Card Whiz Kid, which has all the information you could ever need about credit cards and credit card rates.
Types of fees
There are many types of credit card rates and fees. Here are some of the more common ones and what they mean:
-Annual fee: Paid on a yearly basis for the privilege of using the credit card. If you get second cards on the same account, you may have to pay an annual fee for them as well, but it will usually be lower than your main fee.
-Cash advance fees apply when you withdraw money from an ATM using your credit card. Often credit card rates apply, but this fee can actually become quite costly (some cards have no upward limit on this fee), so you should only do it in an emergency, and then only when you know what that fee will amount to.
-Over limit fees: If you go over your credit card limit, your issuer has two choices: deny the transaction, or allow it within a limited range and charge you a penalty. Again, make sure you know which option your card prefers. Better yet, stay within your limit.
-Dishonored checks and payments: If you can write checks against your credit card, or if you have monthly payments coming off your credit card, there’s always the possibility of a payment ‘bouncing.’ Credit cards charge a hefty fee when this happens.
-Inactivity fees: Yes, you read that right: some companies offer great credit card rates, good service, and all the bells – until you stop using their card. Then all of a sudden you find yourself paying fees because you haven’t charged anything in a while!
Not only are these fees inconvenient, but standard credit card rates apply to them: if you have to pay a fee, you will also have to pay interest on that fee. That’s why it’s so important to understand your credit card rates and fees, and to accumulate as few as possible.
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