A credit card has become an indispensable part of a modern lifestyle. It comes with a set of unique, distinct advantages like earning rewards, making essential & non-essential purchases, and building your credit score. However, like any other financial product, it is not free, but subject to several charges, and terms & conditions. If you are planning to apply for a credit card or are a new credit card user, you need to be aware of these charges in order to avoid paying excess charges later on. Here’s a list of credit card charges that all spenders should know:
1. Annual Maintenance Fee
The annual maintenance charge or fee is not really one of the hidden charges. Charged once a year as the name implies, this fee varies from card to card. Sometimes banks issue “free” credit cards which means there will be no annual fee for the first year of holding the card, but it may be applied from the second year onwards.
2. ATM Withdrawal Fee
Since a part of your total credit limit is granted to you as a cash limit, a credit card can be used to withdraw cash from an ATM. But this service is not free. It comes with a fee as steep as close to 2.5% of the amount withdrawn. This is why taking out a cash advance with your credit card should always be the last resort.
3. Late Payment Fee
If you fail to pay your outstanding credit balance on time, you will incur a late payment fee. Banks usually give you the option of paying a minimum amount instead of the entire outstanding amount on your credit card. But in case you are unable to pay even this minimum amount, the late payment fee is levied.
4. Interest Charges
You are charged an interest if you don’t pay off your full balance at the end of each billing cycle. The amount of interest you are charged is the Annual Percentage Rate (APR). Since credit card interest rates are very high as compared to all other types of loans, it is best to pay your bill in full every month.
5. Over-the-limit Fee
While you may be allowed to spend an amount exceeding your credit limit, this service is not free. Banks typically charge a hefty over-the-limit fee for such transactions. Therefore it is best not to spend up to your credit limit. It must be noted that a credit utilization ratio of less than 30% also improves your credit score.
6. Foreign Currency Mark-up Fee
While credit cards are promoted as globally acceptable, there are charges are levied on foreign transactions. Known as Foreign Currency mark-up fee, this is charged as a fixed percentage of the transaction amount. Ranging from 2 to 3.5%, the fee differs from one credit card to another. It is best to use a credit card with zero or a low foreign exchange mark-up fee for purchases in a foreign country.
To conclude, credit cards come with a lot of fees that may initially seem negligible, but can cost you dear in the long run. Being aware of the above-mentioned fees and penalties can help you avoid paying them. Generally speaking, if you pay your bill on time, ensure you have adequate funds in your bank account, and do not exceed your credit limit, you will never have to end up accruing high fees.
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