Here we’ll outline some of the main charges and fees that can arise when using your credit card. If used properly credit cards can be a source of extra funds and result in a big net positive for your financial standing. But without being fully informed there is a good chance you’ll see charges levied, which will also affect your credit score in some cases. It’s also worth being completely up to speed on the types of charges since it might also help you make a better decision about which card to use, since switching cards for different purposes is often a good idea.
The most obvious charge to be aware of is that of withdrawing cash at the ATM. The first problem with this is that there are usually interest fees (normally higher than your normal interest rate) that start accruing immediately on the withdrawn amount, unlike other purchases that allow you time to pay back the amount before interest is levied. Another issue is that a charge will usually be put onto the amount withdrawn at about 2 or 3%.
Using your card in a foreign country is a minefield of charges, including cash withdrawal fees, conversion fees and in some cases prohibitive interest rates. It’s wise to review these charges before spending with your card abroad – and it may be better to have an alternative lined up such as a foreign currency card or an overseas spending credit card which will allow you to avoid these charges.
When you get your card a credit limit will be agreed with your bank. There are charges that kick in immediately if you go over this amount. If it is a once off occurrence then you might be able to have the charge waived, but it’s better not rely on this.
Your card will have a minimum repayment amount specified which needs to be met each month or a charge between £10-£15. What’s worse is that your credit rating will suffer. Even if you meet the minimum repayment, this will not guarantee that the interest on the account will not keep mounting, so it is important to try and clear as much as you can or the debt could last for much longer than expected.
If you are stuck with a credit card debt that is hard to get down, you may want to consider a balance transfer card, which allows you to transfer the debt to a card which will halt the interest increases for a time while you pay it off (in return for a fee usually, but in some cases there can be no fee charged).
Charges on credit cards are often quite easy to avoid, and if you manage to do so you’ll avoid having a reduction in your credit score. Using them well opens up a range of benefits including payment protection, financial flexibility and even an increase in your credit score.