Credit card companies are quick to charge fees for a variety of reasons. If you make a late payment, take a cash advance or use your card in a foreign country, you may be charged. Some fees and penalties are more expensive than others, but they can add up quickly, so it’s important to understand how to avoid them. As with anything credit card-related, staying within your budget, making your payment promptly and reading the fine print should keep you safe and out of trouble. Read on for our tips on how to avoid credit card fees and penalties.
How to avoid credit card fees and penalties
These guidelines will both help you steer clear of fees and penalties and help you build your credit.
- Pick the right credit card. Look for a card with no annual fee or no foreign transaction fees if you plan to travel abroad. You can use more than one credit card to maximize your benefits without paying fees. There are also credit cards that have no balance transfer fees, if that’s a financial maneuver you’re considering making.
- Make your minimum payment by the due date. Pay your bill in full every month to avoid interest, but when budgeting constraints arise, you can still avoid late payment fees and other penalties by making at least the minimum payment.
- Set up alerts. Many credit card companies have recently added the ability to set up alerts in your account. You can set alerts for when your payment is due, when you reach a spending threshold or when you’re close to your credit limit. These alerts not only help you avoid late payment fees, but can also ensure you avoid over-the-limit or returned payment fees. You can also set up autopay on your credit cards so that you never miss a payment.
- Beware of credit limits and spending thresholds. To avoid over-limit fees, try not to spend up to your credit limit. Credit card companies typically give a small buffer beyond your credit limit in case of emergency. For the best effects for your credit, try to stay below 30% of your credit limit.
- Verify you have sufficient funds in your bank account. Finally, to avoid returned payment fees, be sure to verify that you have sufficient funds in your bank account to cover any scheduled payments.
While these rules will generally keep you clear of extra charges, understanding individual fees can help you lay out your financial strategy. Below are the most common credit card fees and penalties.
A credit card late fee is charged by a credit card issuer if the minimum amount due is not received on time. The fee can be up to $30 for the first offense and up to $41 for the second offense within six monthly billing cycles. You can be charged one late fee per billing cycle.
The purchase APR is what you pay in interest when you make a purchase with your credit card. Some credit cards come with an introductory purchase APR, which is a lower interest rate that is offered for a set amount of time. Once the introductory period ends, the regular purchase APR will take effect.
A penalty APR is a higher-than-normal rate that results from violating the card’s terms of service -- for example, if you fail to pay your monthly bill on time. It’s costly, harmful to your credit and commonly takes months to resolve. If you make a payment that’s 60 days or more late, your card issuer may apply a penalty APR to your account. This will generally apply to both your current balance and future purchases, and it can raise your interest rate significantly -- sometimes up to as much as 30% APR.
Some credit cards charge annual fees in exchange for the rewards and benefits. Annual fees can range from $39 to over $500, but there are plenty of good credit cards with no annual fee.
Balance transfer fee
A balance transfer fee is a fee charged for transferring debt from one account to another. It’s usually around 3% of the total amount you transfer, but may be as high as 5%. There’s usually a $5 or $10 minimum for balance transfer fees.
Foreign transaction fee
A foreign transaction fee is charged by a credit card issuer for transactions made or processed outside of the US. Fees may vary from card to card, but usually are around 3% of the purchase. Travel credit cards don’t typically charge foreign transaction fees.
Cash advance fee
Credit card companies charge a fee for cash advances, the money you take out at an ATM. The fee is typically a percentage of the transaction, with a minimum fee of $10. In addition, interest will accrue on the cash advance immediately, which is likely to be much higher than the APR for credit card purchases you make.
Returned payment fee
A returned payment fee is a fee charged by a bank when an electronic bill payment or electronic transfer transaction is rejected due to an insufficient balance in an account, such as when a check bounces. These fees may be around $30 and are charged by the bank when it rejects certain transactions.
An over-limit fee may occur when you charge more than your credit limit to your credit card. Credit card issuers give account holders the option to opt-in to over-limit fees -- otherwise those charges will be declined. Without your consent, they cannot charge over-limit fees. The CARD Act of 2009 also forbids issuers from charging a fee higher than the amount you are over the limit.
Credit card checkout fees may be charged at the register whether in-store or online. These fees are charged by the merchant rather than the credit card issuer. They may be a percentage of the total purchase price or a flat-rate charge. They may also be called surcharges.
The bottom line
If you make your payments on time and in full and pick the right credit cards for your wallet, you can potentially avoid all of the common credit card fees and penalties. To find the best credit card, check out our picks for the best cash-back credit cards, best rewards credit cards and best balance transfer credit cards.
The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.
Correction, 7:30 a.m. PT Jan. 25: An earlier version of this article incorrectly stated that credit card late fees can be up to $28. The article has been updated to clarify that a credit card issuer can charge a customer up to $30 for their first late payment and up to $41 for subsequent late payments. The earlier version also suggested that foreign transaction fees are charged for transactions made abroad. The article has been corrected to clarify that foreign transaction fees can be made for transactions made or processed outside of the US.