Common Credit Card Fees & How to Avoid Paying Them

Credit card fees can be expensive and annoying, but many of them can be avoided if you’re careful, and others may be worth paying if you get something valuable in return. For example, many of the best rewards credit cards charge annual fees but can still save you a bundle. It’s important to be aware of what fees your card may charge and what situations trigger them so you don’t have any costly surprises.

Common Credit Card Fees

*Among cards with monthly fees, when the fee is in effect.

Sources: WalletHub, CFPB, Experian

Given the myriad different fees that credit cards are known to charge, the differing situations in which they apply, how quickly they can add up, and the corresponding implications for your account/credit standing, it’s definitely worth familiarizing yourself with the ins and outs of these pesky charges. Below, we’ll talk in depth about the most common types of credit card fees, how to pay them, how to avoid them and more.

Common Types of Credit Card Fees Explained

Annual Fees

These recurring “membership” fees are used to cover the cost of account maintenance, such as customer service, rewards programs, and supplemental benefits. As the name suggests, annual fees get assessed on a yearly basis, though some cards may offer a promotion that waves the annual fee for the first year of card membership.

Not all credit cards charge annual fees, though. In fact, only about 15% of credit cards do, according to WalletHub’s data. That means there are tons of great credit cards, including ones that offer lucrative rewards, that have no annual fee.

On the other end of the spectrum, the most expensive credit cards charge annual fees that are hundreds or even thousands of dollars. The average credit card annual fee is $26.75, according to WalletHub’s Credit Card Landscape Report.

Monthly Fees

Monthly fees are basically the same thing as annual fees, except they’re charged on a monthly basis instead of yearly. They are very rare in general, but they’re most common among unsecured credit cards for people with bad credit.

Late Payment Fees

This is an example of a fee that’s assessed as a penalty for breaking the terms of your account. When you open your account, you agree to make your payments by your monthly due date, so if you break that agreement, your issuer can charge you a late fee. A late fee cannot exceed your monthly minimum payment, and you can typically get this type of charge waived the first time you incur it.

If you are late on your payments for multiple months, you’ll get charged a separate late fee each month, and the fee may also increase. Your credit card issuer will have a “maximum late fee” listed in the terms and conditions that came with your account.

The average late fee is $33.78, according to WalletHub’s data, so it’s quite costly to miss a payment. Setting up automatic payments on your credit card can ensure you never pay late as long as you have enough money in your linked bank account.

Foreign Transaction Fees

A foreign transaction fee is a 1%-3% surcharge that applies to credit card transactions processed by merchants outside of the United States. Foreign transaction fees can apply not only when you are physically abroad, but also when you’re making purchases online or over the phone if the merchant you’re buying from is based internationally. While the fees are small, they can really add up over time.

The good news is that there are a lot of credit cards with no foreign transaction fees. However, whether your card has a foreign transaction fee or not, you still need to watch out for and refuse dynamic currency conversion, which can raise the cost of your purchases abroad by more than 10% in some cases.

Balance Transfer Fees

When you transfer debt from one credit card to another, presumably to get a lower interest rate, the new credit card will usually charge you a fee. This balance transfer fee, typically 3% or 5% of the balance being transferred, is used to obscure the cost of the transaction, enabling the issuer to offer an eye-catching 0% term while still bringing in revenue.

Anyone contemplating a balance transfer should therefore consider not only a given card’s introductory interest rate and the length of time it will remain in effect, but also the fees that it charges and its regular APR.

You can use WalletHub’s free balance transfer calculator to figure out if a particular offer is worth pursuing. It’s also worth noting that there’s a small number of cards that have both no balance transfer fee and an introductory 0% APR on balance transfers. The average balance transfer fee is 3.34%.

Cash Advance Fees

When you use your credit card at an ATM in order to tap into your credit line and receive cash, not only will your credit card company immediately begin to assess interest (usually at a rate higher than your normal APR), but it will also charge a significant up-front fee. According to WalletHub data, the average cash advance fee is 4.02%.

Cash advance fees are therefore one of many reasons not to use your credit card like a debit card. After all, if you never make a cash advance, you’ll never owe a fee. Of course, sometimes emergency situations happen, but you should strive to pay back any cash advances as quickly as possible to minimize interest.

Over-Limit Fees

This type of fee gets assessed when your balance exceeds your credit limit. Over-limit fees were a major problem for consumers before the CARD Act began requiring cardholders to opt-in for the ability to exceed their spending limits and capped the resulting penalty fees. Over-limit fees are limited to the amount by which you exceed your credit limit, up to a maximum of $25 for the first offense and $35 for subsequent over-limit transactions.

Some people choose to opt-in to the ability to go over their limits in case of emergency situations. And that’s the only time you should ever consider going over-limit. Ideally, you should keep your spending to less than 30% of your credit limit, or you risk credit score damage.

Returned Payment Fees

If you don’t have enough money in the bank to cover a payment you made to your credit card company, you may be assessed a fee for the inconvenience. That just adds insult to injury, so make sure to check that you have enough money in your account before you submit any payment (especially if you’re paying by check and there’s no chance it’ll get automatically declined).

Returned payment fees usually cost around $25 to $40, according to the credit bureau Experian.

Credit Card Interest

While credit card interest isn’t a fee, it’s still an important cost to consider with credit cards. Credit cards have a grace period between the end of each billing period and your monthly due date, during which you can pay in full and avoid interest entirely. But if you carry a balance beyond your due date, you’ll start accruing interest on your existing balance and you’ll lose your grace period on new purchases until you’ve paid in full for two consecutive months. Interest can add up quickly, as the average APR among new credit card offers is 22.76%.

You can learn more about how credit card interest works here on WalletHub.

Other Types of Credit Card Fees

Basic Account Fees

Every credit card offer has a basic fee structure which includes charges that apply to all account holders, irrespective of their particular usage habits. During the first year that an account is open, these basic account fees (i.e. non-penalty, non-usage fees) cannot exceed 25% of an account’s credit line. In addition to annual fees, basic account fees may include:

• Application / Processing Fee: This is an administrative charge used to cover the cost of evaluating your application for approval. Certain issuers that target people with damaged credit use this type of fee — which is assessed prior to account opening — as a way to skirt CARD Act regulations capping first-year fees.
• Account Set-Up / Program Fee: This non-descript one-time charge is typically assessed when you are approved for a credit card, ostensibly to pay for the general benefits of being a cardholder, but it is just another excuse for the credit card company to charge you a fee. This is basically the same thing as an application or processing fee.

Usage Fees

Credit card fees aren’t always fixed. In other words, they are often a product of the types of transactions that we use our cards to make. Foreign transaction fees, balance transfer fees, and cash advance fees are among the many types of usage fees. Others include:

• Credit Limit Increase Fee: On rare occasions, a credit card company will charge certain customer segments a fee in return for a higher credit limit. This fee can be significant, often as much as 25% of the limit increase.
• Merchant Surcharge: Though more a cost of doing business with a credit card than a straightforward credit card fee, a merchant surcharge represents a retailer’s ability to increase the cost of an item when you use credit, relative to cash. This type of fee is often referred to as a “checkout fee.”
• Dynamic Currency Conversion: Foreign merchants are known for overcharging tourists by applying unfavorable exchange rates when converting purchase totals to dollars, in a process known as Dynamic Currency Conversion, or DCC. Fortunately, dynamic currency conversion is easy to avoid. Simply always insist on paying in the local currency, and if you are uncomfortable doing mental price conversions to dollars, bring a cell phone or pocket calculator along on your trip.
• Credit Card Insurance Fee:Consumers who are concerned about their ability to afford credit card payments may sign-up for credit card payment insurance, which will cover minimum payments until the cardholder regains the means to pay. Given these potentially expensive fixed costs and the coverage loopholes that often exist, it’s best to set up an emergency fund rather than spend additional money on payment protection that might never even prove necessary.

Customer Service Fees

As consumers, we all like having somewhere to turn for answers to our questions, particularly when they have financial implications. Providing those answers costs money, though, especially when you have actual human beings answering the phones. Credit card companies cover these costs with a variety of fees, which are often tied to the particular customer support services that you leverage as well as how often you do so.

• Paper Statement Fee: In an effort to promote “green” banking and save on postage, some credit card companies may charge extra for the ability to receive paper account statements through traditional mail, as opposed to electronic statements via e-mail. Certain issuers may also charge a fee for requesting a copy of a previous month’s statement, so be on the lookout for that as well.
• Expedited Payment Fee: While the CARD Act prohibits most fees associated with the payment of debt, the rule does not apply to expedited payments that require the assistance of a customer service representative. This type of fee has become nearly extinct since the passage of the CARD Act.
• Replacement Card Fee: Most issuers will give you at least one replacement card for free, but subsequent replacements may cost you, especially if you require expedited processing and mailing.

Credit Card Fees for Businesses

While business credit cards can have all the same fees as consumer cards, many of the restrictions that apply to the amount and frequency of consumer credit card fees do not apply to small business credit cards, which were excluded from CARD Act protection.

Owners may also encounter additional credit card-related costs as a result of receiving credit card payments from consumers or corporate clients, including:

• Credit Card Processing Fees: Businesses that accept credit card payments must hire a payment processing service and pay a small percentage (usually around 1%) of all purchases in fees.
• Credit Card Fraud Insurance: Retailers and wholesalers must also worry about credit card fraud, as merchants, payment processors, and financial institutions are responsible for the cost of unauthorized transactions (which takes the burden off consumer victims). The added risk oftentimes necessitates paying for added payment processing security or taking out a fraud insurance policy.

Paying Credit Card Fees

With the exception of pre-account-opening processing fees, which must be paid before you can even activate your card, credit card fees are typically rolled into your overall balance. That means they can begin accruing interest if you don’t pay your bill in full (including any other purchases you’ve made or debt you’ve incurred) by the due date.

For example, let’s take a look at how the process works if your card has an annual fee.

How Paying a Credit Card’s Annual Fee Works

• When it’s assessed: When you decide to open a new credit card account, the annual fee is assessed like a standard purchase.
• How it’s charged: Your credit line will be reduced by the amount of the fee and will become part of your balance, which you must pay off in full by the due date in order to avoid incurring interest.
• How much you’re required to pay: You should pay the full amount by the due date. If you can’t afford to pay in full, pay the minimum required (typically 1% to 3% of the balance or $15 to $40, whichever is higher) each month to avoid late fees and credit score damage. The remaining balance will accumulate interest, though.

Now, if you choose not to activate the card, you can call the issuer and tell them that you have not activated the credit card and wish to close the account. They may still try to make you pay the annual fee, but make it clear to them that you are not liable for any fees because you are closing your account before actually activating the card.

How to Avoid Credit Card Fees

No one wants to pay credit card fees. That’s why consumers frequently point to them as being one of the main deciding factors in their choice of a financial institution. Fortunately, credit card fees are fairly transparent these days, which means you should have some foresight into what you stand to be charged and when. This in turn gives you the ability to avoid fees by either finding a different product or changing your usage habits.

“Fees are something that the consumer can, in principle, easily quantify and translate into dollars saved,” says Maria-Ana Vitorino, Assistant Professor of Marketing at INSEAD. “Customer service or branch availability is something that is harder for the consumer to attach a monetary value to, for example.”

You just need to know what to look for as well as a few tricks of the trade because, as Vitorino notes, “the more consumers get confused about fees, the less they are able to differentiate among products.”

Tips for Avoiding Credit Card Fees

• Set Up Automatic Payments: You can establish automatic monthly payments from a checking account for the minimum due, your full balance, or a custom amount. This prevents you from owing late fees, as long as you have enough money to cover your payments.

• Don’t Opt-in to Go Over-Limit: As long as you make sure to keep your credit utilization at reasonable levels (which is also beneficial to your credit standing), you won’t have to worry about an inability to make emergency purchases due to insufficient available credit. In other words, opting-in to exceed your credit limit is an avoidable recipe for trouble.
• Don’t Do Cash Advances: Cash advance fees are among the easiest credit card fees to avoid, because all you have to do is not use your card like a debit card to get cash. Unless you’re in a dire emergency situation, you should avoid this type of transaction at all costs.
• Use the Right Card When Traveling Abroad: Taking a card with no foreign transaction fees with you when traveling abroad can save you up to 3% on your purchases. The same applies when making purchases from foreign merchants online or over the phone.

• Comparison Shop: Comparing credit cards across issuers always enables you to find the best deal. The fees that a given card charges should be one of the primary factors that you consider when comparing offers, especially if you have below-average credit since lucrative rewards and low rates likely won’t be available anyway.

• Go Paperless: You can help both the environment and your wallet by taking your credit card management online.

• Ask for a Fee Waiver: If you’re usually a model customer, you can typically ask for and receive a fee waiver in the rare instances in which you make a mistake. You may even be able to get an annual fee waived if you’re considering switching to a card from a different issuer. In fact, 58% of consumers who have asked for some sort of fee waiver have been successful at least once, with the most common types of fees waived being late payment fees and annual fees, according to a WalletHub survey.

• Order Free Credit Reports: Checking your credit reports helps mitigate credit bureau mistakes and fraud. You can check your TransUnion credit report for free here on WalletHub and get daily updates. You can also get your credit reports for free each week at AnnualCreditReport.com.
• Check Your Credit Score: Checking your credit score regularly is a quick and easy way to track your credit standing and estimate which credit cards you can qualify for when comparing different cards’ fees. You can check your latest credit score for free here on WalletHub.

• Understand Special Rules for Military Personnel: Certain laws dictate credit card billing practices for active-duty military personnel when deployed, often limiting what they can charge in fees and interest while you are indisposed.
• Earn Rewards: Earning rewards on your credit card won’t exactly help you avoid fees, but it can make paying certain fees worthwhile. Many credit cards with expensive annual fees offer lucrative rewards and big initial bonuses that can more than outweigh their costs.

It’s also important to note that fees alone don’t drive the cost of credit card use. Interest is the other main type of cost associated with credit cards, and one could even make the case for potential credit score damage being another cost of doing business with plastic. You should therefore check out WalletHub’s guides on How Credit Card Interest Works and How to Improve Your Credit Score in order to learn more about reducing your credit card costs.

Examples of Particularly Nasty Credit Card Fees

Opinions are our own. This content is not provided, commissioned or endorsed by any issuer. WalletHub independently collected information for some of the cards on this page.

During the course of WalletHub’s continued analysis of more than 1,500 different credit card offers, a few cards in particular have stood out due to particularly troublesome fees. We highlight their issues below, with commentary from WalletHub CEO Odysseas Papadimitriou – a noted personal finance expert and former senior director in Capital One’s credit card division – to give you a sense of what types of card features to avoid.

25% Credit Limit Increase Fee

The First PREMIER® Bank Secured Credit Card and the First PREMIER® Bank Mastercard Credit Card charge customers who ask for and receive a credit line increase a fee equal to 25% of the amount by which their credit limit rose. For instance, a customer receiving a $200 credit limit increase will get charged a $50 fee.

As if being assessed an unusual fee is not enough, First Premier’s fine print dictates that this fee will not be refunded unless the customer notifies the bank that they do not wish to keep the higher limit within 30 days of the date of the periodic statement on which it appears.

$220 in First-Year Fees for $300 Credit Limit

The First PREMIER® Bank Mastercard Credit Card charges as much as $220 in fees before your first account anniversary (a processing fee of up to $95 and an annual fee of up to $125). That is equivalent to 73% of the credit line.

Now, you might be wondering how this is legal in the post-CARD Act environment, where first-year fees are limited to 25% of the card’s initial credit line. Well, the limit currently only applies to fees charged during the first year an account is open because the courts granted First Premier’s request for a preliminary injunction to the Federal Reserve’s October 2011 amendment to Regulation Z that would include fees charged before an account is open as well.

Legal nitpicking aside, the reason why this First Premier fee is bad is that instead of paying a $220 non-refundable fee for the right to use a credit card, consumers can simply put their cash toward a secured credit card’s security deposit, which is completely refundable.

$699 Annual Fee

The Mastercard® Black Card – an imposter attempting to capitalize on the American Express Centurion Card’s pop culture mystique – charges $699 a year in membership fees. Though this offer comes with a range of benefits, it nevertheless represents poor value given the market competition.

“We all hear ‘black card’ thrown around a lot in popular culture, and the term has garnered a certain measure of social cache given its connection to the uber-wealthy and their lavish lifestyles. The thing is, the real black card doesn’t actually bear the black card name. The term actually describes the color of the American Express Centurion Card, which is an invite-only product that is rumored to have a $5,000 initiation fee as well as a $2,500 annual fee and is catered to people who spend millions of dollars on plastic each year. It’s difficult to understate the difference in terms of the costs and benefits associated with these two cards,” WalletHub CEO Odysseas Papadimitriou said.

“Barclays is simply trying to pull a fast one. But on the semi-bright side, one would think that consumers either can’t afford such a pricey piece of plastic or at least have to sense to look into such a costly purchase before ponying up.”

5% Balance Transfer Fee

A number of cards from Commerce Bank as well as the Orvis Credit Card from First National Bank, for example, charge customers who want to transfer an unpaid balance from another credit card a fee equal to 5% of that balance. Given that the average consumer has close to $7,000 in credit card debt, paying such a steep transfer fee would be a very costly mistake, especially since there’s some free balance transfer cards on the market and a wide variety of cards that charge 3% fees.

A 5% balance transfer fee isn’t the worst thing in the world if it’s paired with an especially long 0% intro APR, though. For example, the U.S. Bank Shield™ Visa® Card offsets its fee with an intro APR of 0% for 24 months on balance transfers, after which the regular APR kicks in – at 17.24% - 28.24% (V).

“Balance transfer credit cards are a gift and a curse. On the one hand, they offer real potential for significant savings. On the other hand, they can be used to perpetuate bad habits and rack up unsustainable debt,” Papadimitriou said.

“The key is to find the best possible balance transfer credit card and to develop, with the aid of a credit card calculator, a debt repayment strategy that will enable you to pay off at least the vast majority of what you owe by the time the card’s low introductory interest rate expires. In order to find a card that will allow you to maximize your savings, you must consider not only the size of your balance as well as how much you can pay each month, but also the combined implications of each card’s introductory interest rate, intro term, balance transfer fee, annual fee, and regular interest rate.”