The Hidden Fees of Credit Cards
Consumers Should Know about These Little Known Charges
Most customers will look for the information about the APR (annual percentage rate) and rewards/incentives when applying for a new card. Credit card companies are actually not allowed to keep any of their fees hidden. Everything a new card user needs to know is embedded in the fine print located on the back of the application form.
But, it's translated into legalese and is difficult to understand at the best of times. Most customers overlook all of this credit jargon and want to apply right away, hence the "hidden" charges.
Those who fail to understand these charges will find that the experience is worse than a migraine headache.
What Credit Card Companies Must Disclose
Some of the obvious clauses concerning credit card use include the following points:
- APR (also called annual interest rate)
- Grace periods
- Penalties for late payments
- Membership fees
- Balance owing methods
Other Charges Consumers Can Expect to Pay
These are a nuisance. In addition to jacked up interest rates for late payments and cash advances, consumers can, and will, be clobbered with some of these charges. This is all in the fine print but they never tell this to you face to face when you apply:
- Over the limit fees - Credit card companies can increase the interest rate by more than 20 percent if the card holder overspends.
- Fixed interest rates - Typically a new applicant will be pleased to find a card that offers a fixed rate that will not increase for as long as he/she holds the card. However, credit card companies can, and do raise their interest rates whenever they want and as much as they want, with just a couple of weeks notice given to the customer.
- Balance transfers - If a card holder wants to switch to a lower interest card, there is a fee for transferring the balance - anywhere from 2% to 4% of the total amount that is owed.
- Inactivity charges - Credit card holders who don't even use their plastic regularly will be presented with yet another fee after a few months, usually $15-$20.
- Foreign currency transaction fees - Buying something in another country does have its disadvantages. Tourists who come home from a vacation will groan with displeasure when they see that they've been slapped with a 2%-3% fee for purchasing exotic merchandise.
It can add up to a big pile of money and might put you in the poorhouse. Credit card companies are squeezing more cash out of their customers through a legal regulation known as universal default. What this means is that if a card holder was late with a payment on a different card, he/she could get smashed with an exorbitant interest hike. There is no way for credit card users to avoid this.
More Annoying Surcharges
- Closure fees - these can be a whopping $40 or more if customers want their account to be terminated
- Reactivation fees
- Fees for using a credit card over the phone
- Fees for bumping up the credit limit
And on and on it goes. This explains, at least partially, why credit card debt in the United States was a horrible $880 billion in 2008. Make sure to read the fine print carefully, and compare different cards and their annual fees, APR rates and penalties before you make a commitment. Or, consider prepaid cards and/or debit cards.
References:
The Federal Reserve Bank
A Credit Card Can Be an Expensive Convenience
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