Know the Fees and Interest Rate for your Credit Card

  • 6 min read

Moving away from home for the first time is just the beginning of the adventure of growing up. Being able to have your own credit card is another stage of life, just like getting a driver’s license or getting married. A credit card can help you be able to live independently and enjoy some financial freedom, but first time users should also be aware of some specific credit card rules that need to be followed.

Why is following these rules important? About half of all employers today will check a job applicant’s credit history as part of the screening process. If a credit report shows lots of negative information, then a real job opportunity could be lost.

Rule #1: Know the fees and interest rates for your credit card.

Thanks to the new rules passed by Congress, American consumers can see many of the rates and fees for their credit card on their application. They are required to be displayed throughout the process so that users will know what their interest rates will be, what any annual fees will be, and if there are variations in interest rates depending on how the credit card is used. Cash advances usually have higher interest rates than regular purchases.

Rule #2: Don’t exceed your budget unless it is an emergency.

Just like a business needs a plan to find success, your life needs a plan to find success. A budget can help you make sure that your spending habits don’t get out of control. A good rule of thumb is to limit credit card spending to an amount that you can comfortably pay off every month. An emergency situation is a little different. If you need to pay $600 now to get your car fixed, then a credit card can help you do that and make the monthly payments for the repair fit into your budget more effectively.

Rule #3: Track your spending with credit card reports.

A number of credit card lenders are offering spending reports to consumers that will let people see what categories their spending habits fall into. These reports are essential to maintaining a balanced budget. Maybe you don’t realize that you’re spending 25% of your monthly income at restaurants , and bars By seeing real figures displayed in real time, you can manage your credit score and keep your credit card interest rates low.

Rule #4: Don’t miss a payment – ever.

When you get your first credit card, you’ve got the chance to begin establishing a reputation of honesty. Instead of your word being your bond when it comes to credit, however, it is your ability to pay bills on time that lenders are going to focus upon. Every payment you make on time helps to establish a reputation if integrity. If you can’t make a payment on time for any reason, contact the credit card lender as soon as possible and set up a repayment plan.

Rule #5: Apply for one credit card.

If you apply for multiple credit cards at once, you can negatively affect your credit profile. These applications create what is called a “hard” credit inquiry. It means that you’re actively seeking new credit. Multiple hard inquiries without approvals can result in credit score reductions of up to 8 points per application you’ve submitted.

These 5 rules will help you create a solid foundation for future credit card use. It’s exciting to be out on your own. When these rules are followed, you’ll be able to better afford the costs of living on your own as well.

Fees are the name of the game in the credit card business. Both individual consumers and businesses pay a small fortune in fees. Some are tax deductible, but most are just money lost.

Below, is an explanation of some of the most common fees credit card Companies charge:

  • Annual Fees: This is a fee a bank charges just for the privilege of having access to money that is not yours. Fees vary, but generally annual fees are anywhere from $50 to $100 per year. Often, the more prestigious the card and the more perks it offers, the higher the fee. Or, if a consumer is a very high risk, the fee may also be high. Not all cards charge an annual fee.
  • Late Payment Fees: This is the fee charged when a payment does not post to the credit card account on time. These fees are exorbitant – ranging from $19 to $39. It makes no difference when the payment was sent or ordered. If the bank does not receive the minimum payment precisely on time, a late payment fee will be charged. The good news is that if a client calls the bank and asks, the fee will sometimes be removed one time, and one time only.
  • Cash Advance Fees: Most credit cards offer the convenience of withdrawing a limited amount (usually no more than $500) of cash. There is a fee for this and the interest on the cash is much higher than regular charges to the card. For clients who know they will be using this feature often, it is recommended to shop around for the lowest cash advance fee.
  • Merchant Account Fees: Consumers are so accustomed to being able to pay for everything with a debit VISA or MasterCard most do not think twice about it. However, merchants pay for this convenience for their customers. Traditionally, VISA and MasterCard charged 3% of the charge in fees. American Express is notoriously non-business friendly charging as much as 6% of the charge in fees. This is why some businesses offer a discount to consumers who pay cash.
  • Balance Transfer Fee: Most consumers receive various invitations in the mail to transfer the balance held on one credit card to another. The teaser is usually 0% interest for 6 months or a year. This sounds great, but the rub is the fee the bank charges to transfer the debt over to them. Usually, the fee is 3% of the amount transferred. However, not all banks charge a fee. Shop around.
  • Over The Limit Fee: Should a consumer charge beyond the limit placed on their account, they will be assessed a fee, usually around $35. Legally, a bank can charge this fee for two cycles that the account is over the limit. Most cards have this fee, but not all.

Protect yourself and be fiscally responsible with your credit card.

Christopher - BSc, MBA

With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.