Credit card fees: What they are and how to avoid them

Every credit card has the potential to incur fees. But what you might have to pay depends on which card you have and how you use it. 

Here are a few common types of credit card fees and how you may be able to avoid them.

What you’ll learn:

• Some common credit card fees include interest charges, annual fees, late fees and cash advance fees.

• Understanding the different types of credit card fees can help you learn when it’s possible to avoid them.

• Credit card processing fees apply to merchants, not consumers. But in some cases, merchants might pass on a surcharge to their customers.

If you don’t pay your credit card balance in full by the due date every month, you may be charged interest. Credit card interest is typically shown as an annual percentage rate (APR). The amount charged depends on the card and balance. The APR could also change over time. You can check your cardholder agreement for more information.

For most credit cards, paying the balance on time and in full each billing cycle can help you avoid interest charges on new purchases. 

Keep in mind that if you carry a balance from one billing cycle to the next, you may still owe interest even if you pay the new balance in full. If you find that you’re consistently charging more on your card than you can pay off each month, it may be helpful to reevaluate your budget. 

For a short-term way to avoid interest charges, you can try a credit card that offers a 0% introductory APR. Just remember that the standard APR will apply when the introductory period ends. And you may have to pay interest charges on any remaining balance.

You can think of a credit card’s annual fee as a kind of membership fee you’re charged once a year for having certain credit cards. 

Some credit cards come with an annual fee and some don’t. For those that do, the amount can vary widely.

If you want to avoid an annual fee, simply find a card that doesn’t charge one. But don’t forget to look at the big picture when choosing a card. You could balance out an annual fee with credit card rewards and benefits like cash back on your purchases, sign-up bonuses and travel rewards.

Making a credit card payment after the due date may lead to late fees. Late fees can vary by credit card issuer. The first late fee you’re charged may be lower than the fees for any subsequent late credit card payments.

If you miss two or more payments, it could trigger a higher penalty APR. Check your credit card terms and conditions to see what late fees your issuer may charge.

Paying your credit card on time can help you avoid late fees. Plus, paying on time can help with building and maintaining good credit scores.

Setting up automatic payments may help you avoid late payments. And if your payment date isn’t ideal and prevents you from making on-time payments, you can check with your credit card issuer about changing the payment due date to a day of the month that’s more convenient.

A balance transfer credit card allows you to move credit card debt from one account to a new or existing card account from another issuer. The charge is typically a fixed fee, flat fee or percentage of the amount transferred. Moving a balance of $5,000 with a transfer fee of 4%, for example, would cost $200.

A balance transfer may help with consolidating credit card debt and simplifying multiple card payments. Another potential benefit is that the balance transfer credit card could have a lower interest rate, which may help with paying off debt faster.

The simplest way to avoid balance transfer fees is to find a card that doesn’t charge them. Remember, it’s always a good idea to make sure you understand the terms of any offer before you make any decisions.

Depending on the card, you may be charged a foreign transaction fee when you’re traveling out of the country and use your credit card for purchases. 

Foreign transaction fees can vary among credit card issuers. And some don’t charge them at all. If your credit card does charge foreign transaction fees, they may be about 3% of your purchase.

Finding a card that doesn’t charge them is an easy way to avoid foreign transaction fees. None of Capital One’s U.S.-issued credit cards have foreign transaction fees. View important terms and disclosures. That includes Capital One travel and miles cards, which let cardholders earn unlimited miles they can actually use.

If your card does charge these fees, you may want to check your cardholder agreement for details. The Consumer Financial Protection Bureau (CFPB) suggests taking the extra step of calling your credit card issuer directly to ask about fees and what else to expect when traveling internationally.

Certain types of credit card transactions are considered a cash advance, including when you use a credit card to withdraw cash against the card’s line of credit. Cash advances may come with a fee of 3%-5% of the amount withdrawn and a higher interest rate than typical credit card purchases. You can check your credit card agreement to see which transactions your issuer considers a cash advance.

To avoid cash advance fees, you could consider other ways to access cash, like withdrawing it directly from your bank account.

If you schedule a payment toward your credit card bill that isn’t honored by your bank, your credit card issuer could charge a returned payment or non-sufficient funds (NSF) fee. This could happen when you don’t have enough money in your account to cover the payment or if your account is closed.

One way to avoid a returned payment fee is to make sure you have enough money in your account when you make the payment.

If you close an account, make sure to change any automatic payments over to your new account to avoid returned payment fees and late fees.

Whether or not your credit card issuer lets you opt in to over-the-limit protection, transactions that push your balance over your credit limit can come with fees and other consequences. These can include interest rate increases and credit limit decreases.

Capital One cardholders are never charged over-the-limit fees. View important terms and disclosures. And eligible cardholders may be able to exceed their credit limits. If your account has access, you can use the Confirm Purchasing Power tool to check if an over-the-limit purchase may be approved.

You can avoid over-the-limit fees by opting out of over-the-limit protection. Then, credit card transactions that would put you over your credit limit will simply be declined. 

It might also be helpful to use a budget to keep track of your spending and avoid going over your credit limit.

Merchants accepting credit or debit card payments pay processing fees to cover the cost of processing and authorizing the transactions. Consumers don’t pay these fees. Processing fees merchants pay may include:

• Interchange fees of about 1%-3% to the customer’s credit card issuer

• Small assessment fees of around 0.13%-0.15% to the credit card network

• Payment processor fees to cover processing services and support costs

Consumers don’t pay interchange fees. Merchants and businesses do. 

In many states, it’s legal for merchants to pass on a surcharge when customers pay with a credit card. The surcharge helps the business offset some of the processing costs. It can be up to 4% of the total cost of a transaction.

Not all merchants apply a credit card surcharge, and some states don’t allow them. Any merchant that does apply a charge is required by law to provide notice in advance. You can look for signs or ask at checkout, and, if necessary, you can purchase your items from a different merchant.

Credit card fees vary by lender. You can check your cardholder agreement to find out about any additional potential charges you may incur, such as fees for: 

• Replacement cards
• Credit limit increases
• Paper credit card statements
• Other types of transactions

Understanding different types of credit card fees and how to avoid them can help you save money. Plus, the more you know about how credit cards work, the easier it can be to manage your finances and stick to a budget. 

If you’re looking for a new credit card, checking for credit card offers before you accept may help you find the right one for you. You can see if you’ll be approved with 100% certainty for Capital One card offers. The process is quick and only requires some basic info. Plus, it won’t affect your credit scores.