Expect fees to proliferate as credit card companies cope with coming federal regulation that limits how much they can hike rates. Here are some to watch out for:
You’ll usually find these attached to reward cards or secured cards, although they’re likely to start popping up on all kinds of cards soon.
How to avoid it: If it’s a frequent flier card, you’re probably stuck with the fee, although it may be waived for the first year. Otherwise, ask the card issuer to waive the fee or if it offers an alternative card with no fee. Or, simply look for a card that does not charge you an annual fee – ever. If you have good credit, you should have plenty of options.
Some secured cards charge for an application fee, but you shouldn’t pay one.
How to avoid it: Once again, ask the issuer to waive the fee. If it won’t, take your business elsewhere and shop for a card that doesn’t charge for the application.
Once upon a time, credit card companies either waived balance transfer fees or capped them at $100 or less. These days, expect to pay 3% or 4% of the amount you’re transferring. If you’re looking for a balance transfer offer to lower your interest rate, you really need to do the math to see how much of those savings will be offset by the fee.
How to avoid it: Look for deals that cap fees (there are still a few out there; check CardRatings.com and CreditCards.com for offers). Check with your current issuers to see if they’re offering any special deals or capping or waiving fees.
Cash advance fees
You’ll pay a fee of 1% to 3% if you use your card to get cash, plus a high interest rate that kicks in the moment you get the cash (no grace period).
How to avoid it: Avoid using your card for cash advances, if at all possible (although a credit card is typically a better option than a super-expensive payday loan).
Foreign transaction fee
It used to be that using your credit card was the best way to pay in foreign lands, since your plastic gave you access to the best institutional exchange rates. Card issuers have offset that advantage by piling on a 3% fee for the privilege of using your card abroad (or even for purchasing items from a foreign vendor while you’re at home).
How to avoid it: Capital One is the only major issuer that doesn’t charge the fee. Discover charges 2%, but acceptance of the card is somewhat limited outside the U.S.
Insufficient funds (NFS) or bounced-check fees
This can be a real pain in the you-know-what to clear up, so don’t bounce a check in the first place. The credit card issuer’s fee is $30 to $40 and most banks will charge an additional NSF fee of $25 to $30 per invalid check or transfer.
How to avoid it: Make sure you have true overdraft protection that links your checking account with a savings account, credit card or line of credit so that transactions don’t bounce. Check your balance frequently to make sure you have enough funds to cover your transactions. Also, find out how long a “hold” your bank puts on large deposits–a bank can often take days before it will let you draw against an unusually large deposit.
Credit card issuers make a mint from these fees, and have been accused of changing due dates and times just to wrack up additional revenue. The new legislation will put an end to those games, but you still have to beware, since the typical fees is now over $30 and many cards will jack up your interest rate if you’re late.
How to avoid it: Set up automatic debits with the card issuer so that at least the minimum payment is taken out of your checking account each month. If you don’t like automatic debits, you can use your bank’s online bill payment system to set up recurring payments so that a set amount is sent to your issuer or simply send the payment in as soon as you get the statement. Don’t mail checks if you can avoid it, since those can be delayed in the mail and don’t leave an electronic trail behind them that allows you to prove the payment was sent on time.
This is a fee for making a purchase that puts you over your card’s limit. Nope – no one will tell you at the cash register that your card is over-the-limit. You’ll just get that bill. And – here’s a twist: Recently, some card issuers have lowered credit limits, sometimes lowering account limits before an existing balance. Tricky, eh? So some borrowers who thought they were above their credit limit, suddenly find themselves exceeding it.
How to avoid it: Keep your balances significantly lower than the credit limit. It’s a good idea to use 30% or less of your credit limit and to sign up for email reminders from your issuer that notify you when your balance exceeds the limits you’ve set. And remember – under new rules signed into law this spring, borrowers must opt in for over-limit access.
For more credit tips, check out my latest columns:
- 7 fast fixes for your credit score
- Low rate balance transfers can hurt credit
- People with $100,000 credit card bills
- Fewer credit card offers, higher fees