Credit Card Fees Often Go Unnoticed Even as They Increase

Credit cards offer great convenience to consumers, but that convenience comes at a price. In recent years, card issuers have raised or added new fees for their products and services. While these costs are described in the mailings and card agreements (contracts) consumers receive from card companies, too many people forget about these fees or aren't aware of them until after they've run up a sizable bill. The following are examples of fees that are becoming more common or more costly, yet still go unnoticed by many cardholders:

Monthly maintenance fees. Rather than charge an annual fee, some lenders impose a monthly fee, often from $6 to $12 a month, whether you use the card that month or not. "Many people don't think $6 a month is so bad; but if they stopped to think that they're paying $72 a year just to be able to carry a card, they'd realize they could have done better by paying a lower annual fee.

Balance transfer fees. You've probably received mail from a credit card issuer trumpeting a "can't-beat-this" low Annual Percentage Rate (APR) of, say, 2.9 percent on any balance you transfer to that card from a competitor's card. But, there also could be a fee for the balance transfer that could outweigh the benefit of the low interest rate. In addition, there may be no grace period on the balance you transfer. Interest often begins accruing the moment the balance transfer is completed. Even if you paid off the balance by the due date, you may still incur interest charges.

Suppose you transfer a $100 balance at a special 2.9% APR to a card that otherwise charges a 15% APR, and you already have a $200 balance on that card from your previous purchases. Then let's say you send in a $50 card payment at the end of the month. It's important to know how that $50 payment will be applied. Will the payment go to reduce the "old" high-rate $200 balance or the "new" low-rate $100 balance you transferred? "The card issuer can decide how to allocate your payment, and unless you know the card issuer's policy by calling the company or checking your card agreement, you can assume the procedures will benefit the card issuer.

Cash advance fees. When you use your credit card to get cash from an ATM, that's considered a loan, and you will incur interest charges immediately, without a grace period. But in addition, you may be charged a transaction fee by both the financial institution that holds your credit card and by the bank that owns the ATM you're using. The fee can either be a flat dollar amount or a percentage (perhaps three percent) of the cash advance. The fee can make a simple cash withdrawal fairly expensive.

Fees for going over your credit limit. If you exceed your credit limit by as little as $1, even if the company approves the purchase by phone at the store, you may be charged an over-limit fee.

Fees for late payments. If you mail in your payment too close to the due date and miss the deadline by even one day, you could face a late-payment fee. These fees have increased in recent years from about $15 to as much as $29. You may face other penalties, such as having your interest rate raised to as high as 32.6% or your card canceled. Here's another alternative to mailing a payment late: Consider calling your card company to authorize it to "debit" (deduct) your payment directly from your bank account before the deadline. This convenience will cost you more than a postage stamp, usually as much as $10, but it's usually a better, cheaper option than paying late and incurring a penalty."

Fees for sending in less than the minimum monthly payment. Suppose you're expected to pay at least $50 for a card payment but you only have $25 available, so you send it in anyway. You've made a payment, but anything less than the minimum can be considered a late payment, subject to a late-payment fee. Again, those fees have increased to as much as $29 at many institutions. And, because an insufficient payment is considered a late payment, you could be subject to other penalties, such as having your interest rate raised or your card canceled.

Fee if you pay your balance in full each month. Some credit cards are starting to impose a fee if you pay your balance in full each month, penalizing its prompt payers. If you pay each month and this happens to you, think about canceling that card.

If you unwittingly fail to meet a "credit standard" that the company did not spell out to you, your interest rate can increase. Many companies are routinely checking your credit report twice a year. If they see your debt increasing, they may instantly raise your finance charge to a punitive rate, even if you have never missed a payment. And then you may need to be a model borrower for 18 months before the company decides to stop treating you like a high risk

The lesson here? Read and understand a credit card offer before you commit to anything. Monitor your monthly billings or other mailings for notices of fee increases or rule changes by your card company. New rules from the Federal Reserve Board also will make it easier to see and understand key information about the card's costs on the applications and solicitations. Example: Card companies for years have been generally required to clearly disclose the APR for purchases charged to a credit card, but they must present this information in 18-point type. Compliance with the new rules became mandatory October 1, 2001.

Also, if you apply for a new card, chances are the company will not set your precise interest rate no matter what number it is advertising, until it checks your credit rating. So you could be tempted by an ad offering an introductory 5.9% rate on up to $100,000 but end up with a card carrying more than double that rate on less than $5,000 credit.

What Can Yod Do To Protect Yourself In This Increasingly Predatory Environment

Pay off your entire balance on time each month. Avoiding finance charges is smarter than ever.

If you can't erase your balance, send in as much as you can. The less you pay, the more the companies make. Some companies encourage you to send in less and have lowered their minimum payment percentage. If you had a balance of $2,000 and only paid the a minimum payment of 2% each month, it would take you 30 years to pay the balance off and you would have paid more than $8,000 in interest.

Maintain as few cards as possible. You probably only need two: one major card and one for emergencies - if, say someone steals your main card.

Limit your debt. Experts say you should restrict your unsecured debt total to no more than 20% of our gross annual income. Anything higher is a warning light for lenders.

Read what the card issuers send you. Under law, the firms offering a fixed-rate card have to give you only 15 days notice before changing terms. Companies providing variable-rate deals can skip the warning it its loan agreement says it my alter terms (and it probably does). Often those warnings and agreements come in fine print legalese. Many States allow any customer facing a pricing change to close the account and repay the balance under the old terms, if the bank is based on one of the States.

Shop for cards carefully. Ask issuers to send you their credit agreements before you apply. That way, you can zero in on the best terms for you without triggering multiple credit searches that make you look like an undisciplined borrower.

Complain if you get hit with an unjustified penalty. You can also protest to Washington.

See our Web Sites on Credit Cards.