Credit card companies charge fees for a variety of reasons, and they can add up quickly. If you make a late payment, use your credit card in a foreign country or take a cash advance, you could be hit with a hefty one. While some fees and penalties are more expensive than others, most of them are avoidable.
For example, though the average APR on a new credit card is very high, around 20%, you can dodge interest charges by paying your entire statement balance on time every month. If you’re aware of other standard fees or penalties, odds are you can avoid those too.
As with anything credit card-related, staying within your budget, paying your monthly bill on time and understanding your credit card agreement should keep you from incurring additional fees.
10 common credit card fees and penalties
Credit card fees are not the same across the board -- they vary based on the issuer and the type of card. When you get a new credit card, review the agreement to understand the fees associated with it. Here are 10 credit card fees you should be aware of:
Your issuer might hit you with a late fee if you don’t pay at least the minimum amount due. Late fees range from $30 for the first late payment and up to $41 for the second (within six monthly billing cycles). Your issuer can charge only one late fee per billing cycle. Though not every credit card issuer charges a late fee for missing a payment, your credit score will likely take a hit.
The purchase APR applies to any balance you carry into the next billing cycle. Some credit cards offer lower interest rates for a set amount of time, known as an introductory purchase APR. For example, if you have 0% purchase APR for 21 months, your purchases won’t accrue interest during that time. But once the introductory period ends, the regular purchase APR will take effect, and you’ll start seeing interest charges on any remaining balance.
A penalty APR is a higher-than-normal interest rate that results from violating the card’s terms of service, such as failing to pay your monthly bill on time. It’s costly, harmful to your credit and can take quite some time to resolve. If your payment is 60 days or more late, your card issuer could impose a penalty APR to your account, which will generally apply to both your current balance and future purchases. Penalty APRs can sometimes be as high as 30% APR.
Some credit cards charge annual fees, ranging from $39 to over $500, in exchange for premium rewards and benefits. But if you don’t want to pay an annual fee, there are a handful of solid credit cards with no annual fee.
Balance transfer fee
Most credit card issuers charge a fee when you initiate a balance transfer from one credit card to another. Balance transfer fees are typically around 3% or 5% of the total amount you transfer. Most balance transfers have a minimum fee in place, usually $5 or $10. If you don’t need a long time to pay down the balance, there are a few credit cards with no balance transfer fees.
Foreign transaction fee
A credit card issuer may charge a foreign transaction fee for transactions made or processed outside the US. Fees may vary by card, but they’re usually around 3% of the purchase. Travel credit cards typically don’t charge foreign transaction fees because there are geared toward cardholders who travel often.
Cash advance fee
Anytime you take money out of an ATM with your credit card, your issuer will charge a fee for a cash advance. A cash advance fee is generally a percentage of the transaction, anywhere from 3% to 5% of the amount, or a minimum fee of $5 or $10. Cash advances can be quite costly because interest accrues on the cash advance immediately, which is likely much higher than your regular APR.
Returned payment fee
A returned payment fee is the amount a bank charges when an electronic bill payment or transaction is rejected due to insufficient balance in an account, similar to when a check bounces. These fees may be around $30 and are typically imposed when the bank is unable to process a transaction.
If you run a balance exceeding your credit limit to your credit card, an over-limit fee may occur. Credit card issuers can’t charge over-limit fees without your consent, and the fee can’t exceed the amount you are over the limit, thanks to the Credit Card Accountability Responsibility and Disclosure Act of 2009.
Credit card checkout fees, often referred to as surcharges, may be charged at the register, either in-store or online, and actually come from the merchant, not the credit card issuer. These surcharges may be a percentage of the total purchase price or a flat-rate charge.
How to avoid credit card fees and penalties
The following guidelines can help you dodge unnecessary fees and penalties and help you boost your credit along the way.
- Pick the right credit card. If you plan to travel abroad, look for a card with no foreign transaction fees. If you want to maximize your benefits without paying fees, consider using more than one credit card to match your spending habits. If you’re looking to pay down your balances or consolidate your debt through a balance transfer, look for credit cards that have no balance transfer fees.
- Pay the minimum by the due date. The most fool-proof way to avoid interest charges is by paying your balance on time and in full every month. If you can make at least the minimum payment, you can avoid late payment fees and other penalties, though it’s best not to make this a habit since any revolving balance will accrue interest.
- Set up alerts. You can set up alerts on your credit card to notify you when a payment is due or when you’re close to your credit limit (among other things) with most issuers. These alerts can help you avoid late payment fees, returned payment fees or over-the-limit fees. Autopay is another option if you never want to miss a payment.
- Beware of credit limits and spending thresholds. To avoid over-limit fees, monitor your credit limit before you make a big purchase. However, some credit card issuers provide a buffer beyond your credit limit in case of an emergency. To maintain good credit, try to stay below 30% of your total credit limit.
- Confirm you have sufficient funds in your bank account. To avoid returned payment fees, check your bank account to confirm you have sufficient funds to cover any scheduled payments.
Correction: An earlier version of this article was assisted by an AI engine and it mischaracterized some aspects of CDs. Those points were all corrected. This version has been substantially updated by a staff writer.
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