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Credit Card Fees – Complete guide to avoid pitfalls in 2023

February 23, 2023 admin

Credit cards are an important financial product nowadays for everyone. But they come with an associated cost in terms of applicable credit card fees. These are fees for operating and maintaining the credit card. As a credit card is a revolving credit line or a loan from a bank. If you do not pay the loan on time, there are applicable penalties or fees on the borrower.

As per the Consumer finance bureau, the USA has the highest outstanding balance of almost a trillion dollars. Further, Americans pay in excess of $120 billion every year in interest and fee charges to the credit card companies. More than 175 million customers have one or more credit cards.

Various kinds of Credit Card fees

Credit cards apply various types of fees. These could be genuine fees such as annual fees, foreign transaction charges, or such other charges. They may also apply other fees or interest charges on outstanding balances.

For example late payment fees, balance transfer fees, cash advance fees, and finally the APR. We delve into each of these fees and will also help our user to identify correctly what are applicable fees.

Credit card fees on Amex, Visa and Mastercard

Annual Percentage Rate (APR)

The Annual Percentage Rate refers to the interest rates applicable on a credit card. In layman’s terms, this is the interest the bank will levy on the balance on your credit card. If you have a credit card with an applicable APR of 22%, it means that any balance you carry past the due date will have this much interest.

APR could be of 3 types: fixed, variable, and introductory or promotional APR. In the fixed rates, your APR is likely to stay the same throughout the time you have your credit card. Variable rates may increase or decrease depending on the federal rates as well as the risk categorization of a borrower.

Promotional or Introductory rates include 0% or low-interest periods offered as introductory rates by credit card companies.

If you pay the amount in full by the last date, you will not be charged any APR or late fee. If you fail to pay or only pay the minimum due, the APR will start kicking in. As every month has different days, credit cards will multiply the average daily balance by the daily periodic rate.

To calculate, the daily periodic rate is to divide the APR by 365. This average rate is then multiplied by the outstanding balance. This daily periodic rate is applied to the daily outstanding balance.

Illustration of APR

For example, if you have a balance of $1,100 on your credit card on the 1st of the month. Or we can say you make a purchase on the 1st day of the month.

Say, the applicable APR on the card is 22%.

The applicable daily periodic rate is 22% / 365 = 0.060274%

Further, your last date of payment is the 28th of the month.

If you pay only a minimum of say ($100) and do not pay anything.

The applicable daily interest charged would be = $1,000 * 0.060274% = $ 0.6024 or only 60 cents a day.

Now, this is a fallacy as you might think that it is such a small amount. But the bank will compound the interest rate every day. They will also charge interest from the day the purchase was made.

Finally, the applicable interest would be = 28 * 0.6024 = $16.86

This might again seem like a small amount, but there are other fees also to consider with a credit card. Like the Late payment fees to be paid as well.

Late Payment Fees

Every time the cardmember delays the balance payments. They will have to pay a one-time fee. This is called late payment fees. Usually, this fee can range from $29 – $99 or even more for some credit cards.

Further, this late payment fee is in addition to the applicable APR on the loan. A late payment fee is a one-time fee for every late payment.

For example, if a card member delays payment six times in a year. Then, they will have to pay this late payment fee every time.

Annual Fees

Some credit cards also come with a fixed amount of annual fees. These annual fees can vary from $29 for a basic credit card and can go as high as $650 for a high-end credit card. Credit card companies levy annual charges to cover fees for providing additional services on cards. These are administrative charges for providing additional services on the credit card.

These additional and complimentary services can include –

Zero Liability protection
Purchase Protection
Additional Warranty
Access to credit score and credit history
Foreign conversion fees
Airport lounge access
Checked-in baggage
Contactless cards for on-tap support

Annual fees help credit card companies offset some of these frisbees. These offers attract customers but they are additional services. Someone has to pay for these services. An annual fee is one way to offset this cost. Some other credit card companies may also have high annual charges to limit the users. This makes their credit card more desirable.

Usually, the offers on the credit card will offset the annual charges. But, the user should be careful in selecting the right card. If they travel a lot a travel co-branded credit card, an airline co-branded credit card, or a hotel credit card may be best.

Balance Transfer Fees

Balance transfers are the facility to transfer the outstanding balance from one credit card or lender to a specific credit card. Members can transfer the balances up to their credit line on the credit card.

Credit card companies charge an amount or fee which is a percentage of the balance transfer. This could vary from card companies. Further, it makes sense to transfer the outstanding balance if the new credit either offers introductory or lower rates. Nonetheless, some banks do offer an introductory period with no balance transfer fees.

Read more about the best balance transfer credit card.

Foreign transaction fees

Foreign transaction charges or fees are applied to purchases made outside the USA. For example, if you are traveling and using your credit card for payments, an amount usually in the range of 3-5% is applied. If you are in the USA but using your credit card for online shopping from a website with a currency other than the US dollar. You will have to pay these fees in that case as well.

Finally, travel credit cards and some other high-end credit cards waive foreign transaction fees.

Cash Advance Fees

Credit cards also charge a one-time fee and interest fees on any cash advances. Cash advances are loans from a credit card. Cardmembers can use the credit card at any of the ATMs to withdraw cash.

Credit cards may also charge a one-time fee of $29 to $49 for any cash advance. The cash advances are treated as a loan. There would be an APR which would be charged on the cash advances. The applicable APR on cash advance fees is usually the highest category.

Over-the-limit fees

Credit cards have a credit limit assigned to them. The cardmembers can’t spend any amount over the credit limit. If they try to make a transaction over the credit limit, the transaction would be denied.

Credit card companies can give an option to the members to temporarily increase the credit limit for a fee. Hence, the name is over the limit fees.

Returned Payment Fees

If a card member has scheduled payments on their checking account for the credit card. If for any reason usually a low balance, a payment might be refused. This return payment fee is applicable in this case.

Personal Finance

7 Smart ways to improve credit score in 2023

January 10, 2023 admin

If you’re looking to improve credit score, using credit cards responsibly can be a smart way to do it. By following a few simple tips and tricks, you can use your credit cards to boost your credit score. We’ll share some ways to improve your credit score using credit cards. By following these tips, you can improve your credit score and increase your chances of getting approved for loans in the future. So let’s dive in and take a closer look at how you can use your credit cards to improve your credit score.

1. Always pay your bills on time

This is the most important factor in determining your credit score. Make sure to pay all your bills on time and every time. Payment history is a key factor in determining your credit score. Paying your credit card bills on time helps improve your credit score. Late payments have a negative impact on your credit score. By paying their bills on time, a user shows that they are financially responsible. This habit help in building and improving their credit score. Additionally, paying your bills on time can help you avoid late fees and other penalties.

2. Keep credit card balances low

Secondly, never utilize the full credit available on your credit card. Utilizing only a part of the limit of credit card balances helps improve credit scores. It shows that a user is able to manage their credit and avoid high levels of debt. When the credit card balances are low, it indicates to lenders that a user is not overleveraged. They are financially responsible and hence have low credit default risk.

Credit cards are unsecured debts and carry a high risk for lenders. High credit card balances are a red flag to lenders. Risk algorithms flag users who have high balance utilizations. They are risky as they are too dependent on credit card debts.

Having low credit card balances can help improve your credit utilization ratio. This ratio is another key factor in determining your credit score. This ratio measures the amount of credit you are using relative to your credit limit, and a low ratio can help improve your credit score. High balances on your credit cards can hurt your credit score, so try to keep your balances below 30% of your credit limit.

3. Limit the number of credit cards and loan accounts

Each time you apply for a new credit card, it can ding your credit score. Try to limit the number of credit card applications you make.

Having too many credit cards can hurt your credit score in a few different ways. First, having a high number of credit cards can increase your credit utilization. This can be damaging to your credit score because it is a major factor in your credit score. High credit utilization can show to lenders that you’re using too much of your available credit.

Additionally, having too many credit cards can also make it more difficult to manage your payments and keep track of your spending. If you have a lot of credit cards, it can be easy to miss a payment or make a late payment, which can also harm your credit score.

Finally, having too many credit cards can also be a red flag to lenders, who may see it as a sign that you’re not able to manage your finances. This can make it more difficult for you to get approved for new credit or loans, and can even lead to higher interest rates on the credit that you do have.

Be mindful of the number of credit cards you carry. Use credit cards responsibly and maintain a healthy credit score.

4. Check your credit report

Make sure to check your credit report regularly for errors and disputed items. Users can request one free credit report per year from each of the major credit bureaus.

Checking the credit report allows a user to identify any errors or potential fraud. By reviewing the credit report, a user can ensure that the information is accurate and up-to-date. If there are any errors or fraudulent activity, flag it to the credit bureau. A credit bureau may not take any step on a report unless someone tells them of any fraud. Managing the credit report is an individual responsibility. Improve your credit score, to avail favorable credit terms when you apply for a mortgage. Reviewing the credit report can help identify any areas where you need to improve to boost your credit score.

Reviewing credit reports provides you with information on any old credit accounts. It also informs of the Credit utilization ratio and any unpaid credits in your name.

5. Avoid maxing out credit cards

Maxing out your credit cards can have a negative impact on your credit score. It’s best to keep your balances as low as possible. Try and keep your usage of credit cards to 30% of the total limit on your credit cards.

Maxing out one’s credit cards is a sure sign of credit distress. This can impact your credit score because it shows that you may be struggling to manage your finances. It also indicates to lenders that you may be at risk of defaulting on your payments. This can decrease lenders’ confidence in your ability to repay future loans or credit, which can result in a lower credit score.

6. Open new credit card accounts only when you need them

Opening new credit accounts can hurt your credit score, so it’s best to only open new accounts when you really need them. Applying for many credit cards in a short period of time can also hurt your credit score. Each time you apply for a credit card, the issuer will perform a hard inquiry on your credit report, which can lower your credit score. This might revert to default in the long run.

7. Be patient to improve credit score

Improving your credit score takes time, so be patient and continue to manage your credit. Once a credit profile turns negative due to any reason, it takes financial prudence for it to turn positive. Also paying a big chunk of money once won’t improve the credit profile overnight.

Consistency is the key to improving your credit score profile. The risk algorithms by lenders and credit agencies reward small payments. It will pay off in the long run.

Use your credit card smartly to extend free credit. Do not be a slave to your credit card or fall into a debt trap. The USA has the highest per capita credit card debt. Find our article on ways to manage the debt on your credit card.

Credit Cards

5 Credit card hacks to score best rewards in 2023

January 8, 2023 admin

Credit card hacks are legal ways to hack the most efficiency out of your credit cards. Pro credit card ninjas can make 3x-4x in benefits. Noobs use credit cards for payments and for easy credit access. Herein we will show you how to be a credit card ninja by learning the game’s tricks.

These are all 100% legit programs or rewards offered by credit card companies. We are not gaming the system or trying to hack any website. Our aim is to maximize the associated benefits of a credit card.

Finally, many credit card companies bundle direct cash benefits like cashback or reward points. Some cards may also bundle non-monetary benefits like free insurance, lounge access, etc.

So without further adieu let’s get into some of the hacks:

1. Credit Card hack to use only one specific Credit Card

Foremost, using one card helps members accumulate cashback and maximize rewards. Multi-cards distribute the spending and reduce the benefits. Members can get a better reward ratio by going for a reward or cashback card. These cards can help them get as much as $500 in a year. If they have a good credit score and have a habit of paying bills on time, it’s easy to get such cards.

Always set up automatic payments for your card bills and pay in full. This helps you avoid any late payment penalties. Card companies offer rewards and cashback only if the payments are paid in full and on time. To get the benefits you have to be prudent and pay on time.

2. Co-branded credit card hacks

These credit cards are some of the best ways to earn great rewards. Look at some of the popular websites or stores you frequent. All the big retailers and eCommerce stores offer co-branded cards with one or the other banks. Airlines and hotels also offer co-branded credit cards.

These credit cards offer rewards in the form of cashback on shopping from the website or store. They may also access the benefits of early shopping days. Some co-branded cards of eCommerce companies offer free shipping.

Always be very careful when opting for these cards. If you get too many cards, it may trigger an emotional response to more shopping. Be mindful of your shopping habits. Co-branded cards usually do not carry any membership or renewal fees. Some of the popular cards you can go for in this category are:

Amazon Prime Rewards Visa Signature Card which offers 5% cashback on all purchases. This card offers even 10% cash back on some Amazon category buys. Outside Amazon, purchases fetch 1-3% cash back. This is a perfect card if Amazon is your go-to website.

Target Red Credit Cards offer 5% cashback on shopping in the store and on the Target website. Members of this credit card also get free 2-day shipping and other hosts of awards.

Costco Anywhere Visa Card from Citi is a good card for Costco members. This card offers 4% cash back on gas and 2% on all purchases from Costco. This card also offers cashback on purchases outside Costco. Costco Anywhere card requires you to have an active Costco membership.

Travel Rewards Credit Card hacks

If you travel a lot because of your business or job or personal travel. You should opt for Co-branded travel credit cards from the airlines. These credit cards help you with free flights or enhance benefits. Members get flight miles when they use these cards for their outside spending. These cards usually offer extra cash back on dining, car rentals, hotel stays, etc. Finally, these cards may reimburse the fees for TSA Precheck or Global Entry programs at airports.

Some popular examples of such cards are

Delta Skymile Amex Card
Southwest Rapid Rewards Visa Card
AAdvantage Credit Cards from Mastercard
United Credit Cards from Chase

It makes sense to choose one of the airlines as a preferred one and its co-branded card as the preferred card. Do not go overboard with too many credit cards here.

Card members can also opt for a co-branded credit card from a hotel chain. Select a popular big chain like Marriott or Hilton which would have hotels in many cities as well as internationally. Marriott offers Marriott Bonvoy Credit Cards from Chase and American Express. These cards offer free nights, accelerated points, elevated status, and benefits to the members.

These cards are beneficial for frequent travelers. Everyone loves to travel these days and the trends on Tiktok and Instagram help people select destinations. People can get further advantages by selecting a better travel card.

4. Apply for Multiple Credit Cards

Once you are comfortable with choosing one card and are financially responsible, apply for multiple credit cards. Multiple cards help you split your monthly spending into various categories. Members can use rewards or cashback cards for grocery shopping. Further, they can opt for travel co-branded cards for traveling or dining-related benefits.

Big card gurus go for 10-12 new cards every year. They may even hack the system to get welcome benefits on a credit card. If your spouse has a good credit score, you can opt for a second referral credit card in their name. You will get twice the welcome bonus and referral bonus as well. This is one of the great hacks to multiply the rewards.

One good example of such a card is the Chase Rewards Freedom card. This card offers 50,000 points when you spend at least $4,000 in the first three months of card issuance. Once you have reached the limit, refer your spouse or partner for a new card, and you can repeat the benefits.

Credit card companies keep elaborate data on their customers. So users can’t go on repeat and rinse the above technique several times. But even for one time, this is a good hack for reaping rewards. Do note that applying for certain credit cards may require a hard look at your credit score. This may also affect your credit score briefly.

Also, keep in mind not to get into the debt trap by spending too much on credit cards. Further, your credit history may go for a toss if you are not able to manage your cards.

5. Luxury Cards

There are high-end luxury cards offered by issuing banks or co-branded by luxury brands. These luxury credit cards offer exquisite rewards and offers. One obvious downside of such cards is that they usually come with hefty joining fees. They may also have annual renewal fees.

There is a delicate balance on these cards as the rewards are mouth-watering. For example, Golf Club Memberships, Free access to platinum lounges, and Premium membership status in hotels and airlines can be yours. But are you okay to shell out hundreds of $$ in annual membership fees? This is a question to ponder.

Credit score betterment

Credit cards can also help you improve your credit score. If you have a balance available on one of your credit cards, increase the credit limit of the card. This will help the member increase the credit ratio which will improve the credit score. Do remember this activity takes time and it may take months before your credit score moves.

Finally, the aim of the game is to maximize the rewards and not let the credit debt pile on. Credit card debt has one of the highest interest rates and penalties, so be conscious of using your cards. Don’t overspend to reach a rewarding milestone. The human brain is wired in such a way that we run towards a goal without thinking of consequences. Never fell into the debt trap. In conclusion, this game is about maximizing returns not selling your soul to become the slave of the card company.

Personal Finance

5 Best Practices to use Credit Cards in 2023

August 31, 2022 admin

Credit cards are definitely one of the wonders of the Financial world. They let you use free money for a period of 30 days and then a further 15-28 days to pay the bill. So a member gets at most 45 days to pay up their bills using their credit cards. In this article, we will take you through some of the best practices to use credit cards.

There are advantages of a credit card but there is a big downside to this free credit period. Credit card companies charge huge fees and interest on late payments and interest. Credit Card companies charge some of the most prohibitive interest rates. For example, some credit cards charge in the range of 2.5% to 4.5% per month of the outstanding amount.

1. Always pay your bill in full and on time

Ensure to pay your credit card bills on time and always in full. This is the surest way to ensure a good credit score and also keep your finances healthy. Paying the least amount due and rolling over credit looks good. The punishing interests and penalties will eat into your hard-earned savings. Think of interest charges on credit cards as negative balances. It eats into your savings and earnings.

If a card member misses payments, they could end up paying penalties of hundreds of dollars. Also, the interest charged can very well run up to thousands of dollars. These are unnecessary payments you can avoid by paying bills on time. Another negative impact of missing timely bill payments is the hit on the credit score of a user. This will further affect the future loans or mortgage requirements of the member.

As a good practice automate the card payment. This will remove the hassle and you will pay in full to the Credit Card Company near the payment due date. This will prevent any accidental oversight. Also, it will prevent any delay in payments and avoid late penalty charges. Credit cards have different billing and payment cycles. It is difficult to remember payment dates if you have many cards.

2. Keep tracking your Monthly Statements

Always keep track of your monthly statements to detect any anomaly in the statement. There might be any fraud activity or extra fees which may go under. Also, be careful of interest rates or charges that the credit card company might be charging you. Setting up notifications on your phone or a credit card app on your phone will help you keep a tab on the spending on the card.

Billing errors though very rare can creep into the card statement. A few minutes spent going through the card statements may help you later with heartburn.

Credit Card companies also offer fraud prevention. The minute a user reports fraud, they can relax as any transaction is the company’s responsibility. So as soon as you reach out to the company, they can help you take care of any fraudulent activity on your card.

3. Stay well below the credit limits of the credit cards

To improve your credit score do not use your credit limit. Try to keep your monthly spending below 30% of your total credit card limits. “Credit Utilization” is the term for this credit card. This reports how much of the available credit is a customer actually using. Lower credit utilization is more financially responsible for a user.

Running through an example, if you have 2 credit cards with a total $20,000 limit on both cards. 30% of the same works out to be $6,000. So keeping your total spend of a month below $6,000 will not affect your credit score. It is always a good idea to be a responsible spender and not go overboard with the limit. An extra payment will help improve the score and bring you back within the limit.

4. Best practices to use credit cards and know your Credit Card

Few card members are aware of the features or the fees on their cards. Users usually buy a credit card from a card sales guy or a recommendation from a friend or family member. Knowing your own credit card can help you detail out the fees, penalties, or charges. Usually, these details are available on the credit card website or their app.

Look out for some of the below charges or fees applicable to your card as the same may impact you as a user.

i. Annual Fees

Firstly, always try and opt for credit cards with no annual fees. The cards which annual levy fees usually offer much more rewards and value. Always, take a stalk if the extra fee is worth the extra benefit the card is offering. Unless you are getting 3 times the rewards from a credit card’s annual fees, there is no point in paying the same. A $1000 annual membership card may offer a golf membership but if you aren’t a golf player the fees are not worth it.

ii. Balance Transfer Fee

Secondly, look for the balance transfer fees. This fee refers to transferring your credit card debt to another provider. Companies charge a fee of 3-5% of the outstanding amount as a one-time fee for a balance transfer. Do check what your credit card is offering you for this service.

iii. Foreign Transaction Fees

Credit Cards may charge exorbitant fees on foreign transactions. Always check the currency display on any eCommerce site so that you are paying in USD. If you are a frequent traveler, choosing a specific card that offers better Foreign Transaction charges makes sense. In spite of additional cost, a credit card with zero foreign transaction fees may come out beneficial for frequent travelers.

iv. Late Payment Charges

Credit cards also levy fees for late payment charges. These Late payment fees can start from $30 and can be high as $250. If we look at some of the popular credit cards like Chase Ultimate Rewards Card, which charges a $40 late payment fee. This is an unnecessary penalty for skipping a payment. The best way is to automate the payment and this takes care of any missed payments.

v. Interest Charges

Lastly, always pay attention to the interest rate charges applicable to your credit cards. Credit cards are notorious for their high-interest charges. Banks collect billions of dollars in profit each year by charging this interest. The Interest is known as the Annual Percentage Rate (APR). If we see the details of the American Express Gold card. The card charges an APR of 20.24% to 27.24% based on the creditworthiness of the card members.

best practices to use credit cards — American Express Gold Credit Card

5. Manage the emotional triggers which make you spend

We all falter sometimes with our credit card payments. Obviously, late payments and interest charges are the facts of life. Be responsible, and keep yourself away from triggers that turn into a spending spree. Fast fashion and easy access have made shoppers fall into the spending spree.

Finally, control your surrounding environment. If you are somebody who gets scared of spending cash. Do the same. Don’t use cards, use cash. You may lose on some rewards but would be happy and financially healthy. Identify your own trigger and own your mistakes.

Some credit card companies increase your credit limit if you pay your bill on time or you are holding the card for some time. These credit limits are usually set up with the consent of the card members. Having too broad or large limits may do more harm to you than helping you in your time of need. You may ultimately, fall into an overdrive of spending or into a debt trap.

The best practices to use credit cards are built over time

In conclusion, remember it takes time to build new habits. But today is a good day to start. Keeping a close watch on your credit statement, paying bills on time, and an emotional check on spending triggers can help you use your credit cards. Enjoy the advantages the 21st-century money is providing without the downside.