Credit cards can be a useful way of managing your money but sometimes they come with a number of fees and charges. If you’re switching between cards it can be difficult to know which card is best for you, based on the charges you might need to pay.
We’ve put together this guide to credit card fees and charges so you know how they work, and what to look out for when looking for a new credit card.
Credit card charges explained
When looking at credit card charges, it’s important to be aware of the different types of charges that exist. Depending on the circumstances you can be charged for a variety of things. These include:
Let's take a closer look at each of these one at a time:
Late payment fees and missed payments
When you get your credit card statement, you will be told the minimum payment amount and what date you need to pay this by. If you make this payment late then you will usually be charged a fee. This will vary between different credit card providers but can be as much as £10 or more.
Late payments can show up on your credit report so if you make them more than once, you might find that some lenders feel they can’t lend to you.
Missing payments altogether is a bit more serious and may result in your credit score being negatively affected. If you’re worried about your situation, you can read our Money Worries guidance.
Withdrawing cash on a credit card from an ATM
You are able to withdraw cash on a credit card with most card providers but you should be aware that there is usually a fee for this.
The fee you are charged is usually a percentage of the amount being withdrawn. This is sometimes around 2-3% which can be quite expensive depending on the amount you are taking out. The other thing to watch out for is the interest that you will pay on the withdrawal, as with most card providers this will be more than the interest charged on a credit card purchase.
You might be charged for using a credit card for cash withdrawals. Always use a debit card for withdrawals if you can.
Using your credit card abroad to make purchases
There are now many credit cards who offer free card usage abroad, but some providers will still charge you for using your credit card for ‘non-sterling transactions’. This means any payment or purchase which is made in a currency that isn’t UK sterling, like euros or dollars. When you make a payment abroad, your card provider needs to convert the amount from the foreign currency back into UK sterling.
Bear in mind that as well as the non-sterling transaction fee, which can be around 3%, you may also end up paying a bit more on the exchange rate. Typically, this is more than when you exchange money in a supermarket or bureau de change before you go on holiday.
Credit card cash withdrawals abroad are subject to a charge. You will also be charged a withdrawal fee and interest on the amount you’re withdrawing.
A balance transfer is when you transfer your credit card balance from your existing card onto a new credit card. This is a way to avoid being charged interest on your existing balance.
Depending on your credit score, you may be able to find credit cards where you aren’t charged interest on your balance for a specific period of time. Usually there is a fee charged for this. Typically, this is a percentage of the balance being transferred, so make sure to consider how much you will end up paying in fees if you transfer your balance.
You might find you’re able to take advantage of promotional offers so that you aren’t charged a fee or the fee is low.
A money transfer is similar to a balance transfer but this time you are transferring funds from your credit card directly into a bank account. This could be used to clear an overdraft but again, you will usually be charged a fee for this. Similar to the charges already mentioned, this will typically be a percentage of the amount you are moving into your account.
As with a balance transfer credit card, you can sometimes find a new credit card which doesn’t have a fee or charge interest for money transfers made within a certain period of time. Check the other terms and conditions for these cards to make sure you’re not going to be charged in other ways. When the no-fee period ends you will pay interest on any money transfers you make.
Exceeding your credit limit
If you spend too much on a credit card and go over your agreed credit limit, you may be charged a fee. This could be as much as £10 or more. The best way to avoid being charged is to contact your card provider beforehand and explain that you are likely to exceed your credit limit. They may be able to provide you with a credit limit increase so that any spending on your credit card is within your limit.
However, you should be aware that this increase might just be temporary or denied.
Ways to avoid paying credit card fees and charges
If you are careful with your credit card and manage it well, it is possible to avoid being charged. Firstly, try to avoid being charged interest by paying off your complete balance every month by your payment due date.
Make sure your payments are automated so that you don’t have to remember to pay your credit card. Most credit card providers will allow you to pay your credit card every month by Direct Debit. You can also look into paying by a recurring card payment where the payment is taken directly from your debit card. This is sometimes known as a ‘Continuous Payment Authority. It’s best to plan these payments for when you know you will have money in your account to make the payment. Usually this is when you get paid.
It also helps to check your payment due date, so you know when you need to make your payment. You can set up calendar alerts or an alarm on your mobile phone reminding you to pay.
The other fees we have mentioned in our guide are based on certain situations like using a card abroad or needing to withdraw cash. If you find yourself in these situations and think you need to use your card, it’s always best to make sure you are aware upfront of any likely charges. You can then make a decision on what to do with the knowledge of what you may need to pay.