Graham Christian, Content Strategist
Have you ever looked at your monthly credit card statement to find a mysterious charge from your provider? If so, you’re not alone. While most users are aware of their card’s annual fee (if it carries one), there are plenty of other ways financial institutions can dip their hands into your pocket. While the amount of fees you’ll pay will largely depend on your credit habits and behaviour, knowing the costs associated with certain actions will make you a smarter and more savvy cardholder. So let’s dive in:
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Cash advance fees
When you need money in a pinch, you can borrow against your credit card balance by taking out a cash advance from your credit card. To do so, just insert your card into an ATM and select the “cash advance” option. Sounds easy enough, right?
While this method may be convenient, it’s also expensive. Cash advances carry a fee which is either charged as a flat rate or calculated from a percentage of the total you withdrew. In addition, many cash advances come with a condition that allows the provider to charge you a minimum and maximum fee. That means if you take out $500 with a fee of 1% plus a minimum fee of $3.50, you’ll be paying an extra $5 just for that transaction alone. You may also be subject to more charges if the ATM you’re using isn’t owned and operated by your financial institution.
Plus, when you take out a cash advance on your credit card, your provider expects the amount to be paid back with interest, and most credit cards carry a cash advance rate higher than that for everyday purchases (typically 22.9% or more). While that may not seem like a big jump from your average interest rate of 19.9%, it can quickly pile up if your advance isn’t paid back in a timely manner.
Balance transfer fees
If you’ve built up a good amount of debt on a credit card, one way to pay it off faster is to move your balance to another one with a much lower interest rate. This is referred to as a balance transfer, and it’s a popular option for those looking to pay off their statement within a set period of time. Balance transfer cards often have ultra-low promotional interest rates (sometimes even 0%) which only exist for a window of time after signing up (usually between 6 to 10 months). This allows users to get rid of their debt without the added pressure of compounding interest.
However, balance transfers do come with a one-time fee per transfer. Depending on your provider and card, this can be a flat fee or a percentage of the total you’re transferring over (usually between 1% and 3%). While no one likes having to pay extra, it’s usually worth it for access to a much lower interest rate.
Foreign transaction fees
If you’ve been using your credit card while in a different country and noticed higher-than-expected charges on your statement, you’ve most likely encountered foreign transaction fees.
Foreign transaction fees are those which occur when your credit card is used in a foreign country (or when you’ve shopped online at a store that deals in foreign currency). It’s typically 2.5 percent of your total, and can add up very quickly if you’re using your card as a primary form of payment while abroad.
The good news? There are plenty of cards available that don’t charge this fee. If your lifestyle includes a lot of travel (whether for business or leisure), you’ll want to make sure you carry one.
Points reinstatement fees
Cards that earn you travel points (Air Miles, Aeroplan, etc.) are great, but they may expire if you don’t use them within a set period of time. If this occurs, you’ll be given the option to buy them back at a set price.
Most points-based travel programs will charge you a points reinstatement fee in order to buy back expired points. In the case of Aeroplan, the cost is one cent per mile, a $35 administrative fee, plus applicable taxes. That’s reason enough to make sure you’re making good use of your points well before they expire.
That being said, each provider and program has different rules, so make sure to contact them directly to find out what their points reinstatement policy is.
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Everyone’s credit card comes with a specific credit limit, usually decided by your credit score and history. If you make a purchase that pushes you over that ceiling, you could be subject to an overlimit fee from your provider (usually in the neighbourhood of $25-$30).
The best way to avoid this happening is to pay close attention to your credit utilization ratio, a percentage which represents the amount of credit you’ve used versus the total amount available to you. Most experts recommend keeping your ratio in and around 30% of your available credit to avoid doing damage to your score.
Dishonoured payment fees
But what happens when you try to pay your statement and don’t have enough money in your bank account?
In this case, you’ll incur what’s commonly called a dishonoured payment fee. This occurs when your bank refuses a pre-authorized debit, and the damage can range from $25 to $48 depending on your financial institution.
This is why it’s important to keep track of your account balance and always ensure you’ve got enough funds available to make your credit card payment. If you don’t have enough to pay your credit card statement in full, it’s still better to pay what you can currently afford that month (even if it’s a minimum payment) than get hit with a significant fee from your bank.
Late payment fees
In a perfect world, everyone would be able to pay their monthly credit card bill on time. As human beings, however, we know that doesn’t always happen for a wide variety of reasons.
In this case, your provider could charge you a late payment fee. Depending on your financial institution, this could take the form of a flat fee (usually between $25 and $30) or an interest increase on your next statement (typically around 5%).
If your late payments are the result of forgetfulness rather than budget issues, you can save yourself a lot of trouble by setting up auto payment with your provider. This way, a set amount (minimum payment, statement balance, or total balance) will be automatically withdrawn from your account each month when you receive your bill, letting you rest easy knowing it's taken care of. If the problem is money-related, one solution is to pay the minimum you owe. While this isn’t a great idea for the long term (as it can cause the interest on your balance to compound over time), it will at the very least protect you from fees and keep your account in good standing. In situations where even the minimum payment is going to be a stretch, you can always contact your provider ahead of time to explain your situation and attempt to negotiate a one-time extension on your due date.
If you're still hanging on to your oldest credit card - which, for the sake of your credit history, you should be - there's a chance it doesn't get a ton of use compared to newer cards which may be more relevant to your current lifestyle and buying habits. In that case, make sure you don't forget about it for longer than a year, or you could be subject to an inactivity fee from your provider. This is a charge sometimes levied against users who leave a card dormant for too long, and in some cases it could result in the account being closed completely.
To avoid this, make sure you're making at least one purchase on the card per year. This sends a message to your provider that the account is still active and in use, saving you from a frustrating extra charge on a barely-used card.
Reward redemption fees
While rewards cards can help you save big on things like travel and everyday expenses, some providers will charge a reward redemption fee each time you cash in your points or dollars.
If this fee is included in your agreement, a good way to minimize the impact is to wait until you have collected a large amount of rewards before redeeming them. Doing this once a year with a large sum, for example, will cost you less than multiple smaller redemptions over the same period.
Authorized user fees
Whether it’s spouses trying to maximize their rewards together or parents giving their teenagers a test run at responsible card ownership, it’s quite common for families to share one credit card account. To do this, however, you’ll need to apply for extra cards. While many credit cards currently offer no fee for this request, some still do. These are called authorized user fees, and they will appear as a yearly charge for each extra cardholder on your account (usually between $20 and $30 per card).
If possible, and especially if you are planning on adding your spouse or children to your account, look for a credit card which offers no fee for additional cards. Keeping an eye out for this feature will save you from paying more in yearly fees.
Promotional interest rates
While not technically a hidden fee, it's also worth talking about promotional interest rates. These are quite common with low-interest or balance transfer cards as a way of enticing those who have existing debt (or a habit of carrying a balance from month to month) to sign up. They typically range from zero interest up to around 12.99% for a certain period of time (usually six to 10 months), and can be used responsibly to help users eradicate their debt and build back their credit. Just make sure you know when the promotional period ends and, even more importantly, what the standard interest rate will be once that happens. Many of these cards have rates that will automatically shoot up to 19.99% to 22.99% once the welcome window closes, leaving users who didn't do their research stuck with interest they can't manage.
The last word
Navigating all the hidden costs of owning a credit card (especially if you’re new to the experience) can be tricky, but educating yourself about both the common and less-common fees and charges involved will save you money and make you a more savvy shopper when searching out the right card for you.
Did we miss any hidden fees on our list? Got any secret tips to avoid the ones mentioned here? Let us know in the comments below.