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An Overview of Credit Card Fees

When you use a credit card, you’re essentially borrowing from the credit card company. In return for access to this credit, the card issuer charges fees.

October 4, 2021

Credit cards can expand your purchasing power and help you build credit, but only when you use them responsibly. Before you sign up for a card, it’s important to consider credit card fees. What are credit card fees? Read on to learn more.

What are credit card fees?

Credit card fees are the costs credit card companies charge customers for the privilege of using credit. The fees also cover the cost of doing business. When you use a credit card, you’re essentially borrowing from the credit card company. In return for access to this credit, the card issuer charges fees. 

Not all credit cards come with every type of fee, and the credit card charges you pay usually depend on your credit score. You can also manage your fees and keep your costs lower by responsibly using your card.

What are common credit card fees?

Credit cards can come with a host of fees. Understanding the fees you may incur, as well as their average cost can be a big help when you’re shopping around for the best deal.

What are finance charges?

Sometimes called “interest charges,” finance charges are the amount of interest you’ve accrued on your credit card balance in any given billing cycle. 

Credit card issuers can calculate finance charges in many ways. Your finance charge can vary depending on how much you owe, your annual percentage rate (APR) and your billing cycle length.

You can avoid finance charges altogether by paying your credit card balance in full every month. This is why it’s important to know the length of your billing cycle, so you can make sure to pay your bill in full before you accrue interest.

What are annual fees?

An annual fee is a yearly charge some credit card companies require cardholders to pay just for owning the card. In some cases, the card issuer collects the fee in a lump sum once a year, but other card issuers spread the annual fee out in monthly payments.

Some credit card companies charge an annual fee to offset their risk when a cardholder has bad credit. Generally, these cards also come with higher-than-average interest rates and sometimes even a monthly maintenance fee.


However, you may also see annual fees with rewards cards. In many cases, these types of cards offer lucrative perks and rewards, making the annual fee worthwhile.

What are cash advance fees?

Some cards let you get a cash advance, which is a lot like taking out a loan from a bank. With a cash advance, you receive a lump sum of cash, and the amount of your advance becomes part of your credit card balance.

In many cases, the interest rate on a cash advance is higher than the rate that’s assessed on a regular balance. In addition, many card issuers charge a fee for a cash advance. 

Depending on the card issuer, you might pay a flat fee or a percentage of the amount advanced. For example, you might pay $10 or 3% of the amount advanced, whichever is higher.     

What are late payment fees?

If you pay your credit card late, you’re likely to be charged a late payment fee, the amount of which varies by credit card company. Generally, you want to avoid these — because they’re extra costs you don’t want to pay, and your card issuer may report your late payment to the credit bureaus, which can lower your credit score.

Federal law limits how much credit card companies can charge a customer for paying their bill late. As of January 2020, the maximum late penalty a card issuer can charge is $40 per late payment.

What are balance transfer fees?

Some credit cards let you transfer a balance from one credit card to another — you can even find credit cards designed specifically for balance transfers. Balance transfer cards are commonly used to move credit card debt from a higher-interest card to a new card with a better rate.

Depending on your creditworthiness, you may even be able to qualify for a balance transfer card that offers 0% APR and no balance transfer fees. However, most of these offers have an expiration date, and interest will start to accrue after a certain time. If you plan on opening a balance transfer card, it’s important to make sure you can pay the balance off before the introductory period ends.

What is a transaction fee on a credit card?

Transaction fees are what the credit card company charges retailers, stores and merchants for the convenience of accepting credit as payment. You might also see these fees referred to as “processing fees” or “swipe fees.”

Generally, credit card transaction fees are rolled into the cost of products and services, so the average consumer usually doesn’t know how much they’re paying for the transaction fee. It’s a cost passed on to the consumer, so unless you ask a merchant directly, you’re unlikely to know the exact rate.

This is also why you might come across stores that set a minimum purchase amount for credit card transactions. Because each swipe of a card costs the store money, smaller transactions may actually hurt the merchant’s bottom line.

What are credit card monthly maintenance fees?

Finally, credit card monthly maintenance fees are similar to annual fees in that some card issuers charge them just for the privilege of using that particular credit card. Generally, you’ll encounter monthly maintenance fees on cards marketed toward individuals with bad credit.

Monthly maintenance fees vary, with some running as high as $15 a month. Unless your credit is very poor, you should be able to find a credit card that doesn’t charge this type of fee. 

How to avoid credit card fees

You want to avoid paying credit card fees whenever you can. Fortunately, there are ways to minimize credit card fees and, in some cases, avoid them altogether.

  • Paying off your card each month. Finance charges can quickly add up, especially when you factor in compound interest. You can avoid interest by paying off your credit card in full every month.

  • Paying your credit card bill on time. Late payment fees can add up, but late payments can also hurt you by damaging your credit score. Your payment history is the most important factor in determining your credit score, accounting for roughly 35% of your score. Even a few late payments on your credit report can hurt you, so make every effort to pay your bill on time each month.

  • Using savings instead of a cash advance. Many card issuers charge a higher interest rate on cash advances than on regular card usage. If you need quick access to cash, it may be better to pull from savings or borrow from a friend or relative.

  • Shopping around for the best rates. Don’t be afraid to shop around for a good deal on a credit card. Compare and contrast various cards, and take the time to review each card’s terms and conditions. However, keep in mind that applying for a card usually results in a hard inquiry on your credit report and that too many of these could lower your score. To avoid racking up hard inquiries, only apply for a card if you think you have a good chance of qualifying.

If you use credit cards, some fees may be unavoidable. But you can reduce how much you spend by paying off your balance each month and practicing good money management habits. Take the time to find a card that fits your goals and budget, and use your card to boost your buying power and improve your credit score.

Or, if past credit card debt is a concern, you may be able to lower the amount of interest you pay not just through a balance transfer to a new card but with a credit card payoff app like Tally†. Learn more about how Tally works, or try our Debt Calculator now to see how much you may be able to save.

​​†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.