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Understanding Credit Card Fees

Mar 30, 2008
Credit cards are very useful and most of us do rely on them at some stage. With so many available we tend to only look at the balance transfer and purchase rates but there are a lot of hidden charges that you need to be aware of.

Balance Transfer Fee - if you plan to start transferring balances to your new card check the fee first. If, for example, the transfer fee is 2.5% then work out how much this will cost you i.e. a transfer of 5000 will cost an additional 125.

Late Fees - credit cards must be repaid on a monthly basis even if it's only the minimum amount. Many banks now charge a fee if this payment is late. Always check the date your payments are due, make sure you leave enough time for your payment to reach the credit card company and clear from your bank. Depending on your method of payment these times will vary, even payments made from online banking services may take several days to clear. Setting up a direct debit for the minimum card repayment amount each month is the safest way to avoid late fees and charges.

Important - many people are unaware of the clause that exists in some credit card companies term and conditions. If you miss just 1 payment on your card you may find that great 0% deal you just signed up for has been ended prematurely by the credit card company for breach of it's terms and conditions.

There can be many reasons for missing a payment, a simply mix up at your bank, a postal strike delayed your cheque or you genuinely forgot to make the payment, whatever the reason the credit card company will still turn off your 0% deal.

Over Limit Fees - your card will be sent to you with a specific credit limit. If, through balance transfers and purchases, you go over this limit then a fee may be imposed. You can also find promotional rates turned off for breaking this term and condition.

Not Using Your Card - can you believe that some banks will actually impose a fee if you don't use your card? So the days of holding a couple of cards with no balances 'just in case' you may need them could be nearing an end. Check with the credit card provider before you apply, often this is called a service fee, account fee or dormant fee.

APR Rates Explained - The APR rate (Annual Percentage Rate) of a credit card is very important because it helps you compare the repayment cost of credit cards against one another. Usually, the higher the APR on a credit card, the more you'll have to repay on any sum of money you have borrowed (assuming that all other things are equal) e.g. a credit card with an APR of 13.9% is going to cost you more than one with an APR of 9.9% over the same period of time.

The APR does not include all the costs of a credit card, for example, late fees or over limit fees, but it tells you about the most important one. If you are looking around for a new credit card you usually want a card with the lowest APR rate possible. This is only one factor to take into account though. A credit card may have a low APR but if carries a service fee, late payment penalties or high cash withdrawal fees then this may effect how much you are being charged overall.
About the Author
Paul Eddison invites you to learn more about Applying For Credit Card .
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