Home Money Education     
Interactive Tools Budgeting & Money Managing Credit Home Ownership Banking & Cash Identity Theft
Credit Card Costs

Credit card costs

With a credit card, like any loan, you have to look at both the interest and fees to see how much it costs you to borrow. While this seems easy, credit cards have different kinds of fees and different interest rates for different balances. Start here to learn what you might pay when you sign up for that next card. You can also click here to use the EverydayMoney Credit Card calculator.

Fees

If you pay your credit card bill in full and on time every month, you will not pay many fees. However if you pay late, bounce a check, or get cash from an ATM, you will usually have to pay fees. Here is a list of common credit card fees:

  • Late payment fee: you will usually have to pay around $35 if your payment arrives after the due date. This is why you have to mail your payment in early so you can be sure it arrives on time at the credit card company.
  • Bounced check fee: if you bounce your payment check (because you don’t have enough money in your bank account), you will be charged a fee of around $30. You will also usually get charged both the late payment fee and the bounced check fee (ouch!). So a bounced check can really cost you.
  • Cash advance fee: when you take cash out of an ATM using a credit card, you are charged a fee. This will usually be a percentage of the cash you take out or a minimum amount (around $5), whichever is greater. So if you take out $200 with a 3% fee, it will cost you about $6.00. That’s a lot more than it costs to take cash out using an ATM card linked to your bank account.
  • Overlimit fee: your credit card has a certain amount you can spend, called your “credit limit.” Say this amount is $500. On most cards, if you spend more than this $500 you will be charged an overlimit fee. It averages around $30.
  • Annual fee: some credit cards charge an annual fee. Usually these cards have benefits or perks, like discounts on purchases at certain stores or airline miles. Before deciding to choose a card with an annual fee, make sure you spend enough on the credit card to make the cost of these perks worthwhile.

Interest

When you apply for a credit card, or when you get your bill, you can see what your interest rate is. It is usually called the APR (“annual percentage rate”) and it is an annual rate of interest. Like all interest rates, the lower the APR the better for you.

  • Three different interest rates. Most credit cards have different interest rates depending on how you use them. There are different interest rates for purchases, for cash advances, and for balance transfers.
  • Default rate. Most cards also have a default rate. This is a higher interest rate that goes into effect when you miss payments, are over your limit or pay with a check that bounces. Many companies will charge this higher rate after only one or two missed payments. This is why it is important to read your bill carefully and contact your credit card company with any questions.
  • Paying balances in full. If you pay your balances in full every month you are usually not charged interest for that month’s purchases. If you carry a balance, you are most often charged interest from the day you make a purchase, on your entire balance.

Credit cards have lots of benefits, but they can become expensive if you don’t use them carefully. You can save a lot of money by shopping around for the credit card that offers you the best terms. The Guide to Choosing can help you learn more about this.