There’s a lot to love about credit cards. They’re not only convenient (no need to carry around tons of cash you could potentially lose), but they can also make it easier to track spending and you can even rack up points and earn bonuses just for using them.
But as any remotely money-savvy individual knows, credit cards also have their fair share of downfalls. For starters, credit cards are easy to misuse. It doesn’t take much thought to swipe plastic at the store, and if you swipe without intent, you can easily spend more than you have at your disposal.
This can lead to snowballing debt, since credit card interest rates are usually very high. And if you use too much of your credit line at once (usually about 30 percent or more) or habitually neglect to pay the minimum, your credit card debt can ultimately damage your credit score—extremely dangerous, considering your credit score is like your financial DNA and a measure of your trustworthiness for important things like auto loans and home mortgages.
While it’s relatively easy to understand these basic concepts behind credit cards, there are—unfortunately—some more nuanced things about credit cards that even the most financially-responsible can miss. That’s because all credit cards are slightly different.
If you’re not careful and don’t fully understand the terms and conditions or your specific credit card, you may incur hidden fees. Here are some of the most common to be on the lookout for:
Though it’s one of the more obvious “hidden” fees, the late fee is one that can really do some damage. Tardy payments will not only cost you a dollar figure in the form of a fee—typically about $25 for the first offense and $40 or more for repeat offenses—but repeatedly late payments can also severely damage your credit score. Also note: If you’re repeatedly late on your minimum payment and miss the deadline by 60 days, your card issuer can actually raise your interest rate, meaning you’ll spend more over time if you regularly carry a balance.
Foreign Transaction Fee
Regularly exercise your passport? You should always do your due diligence when selecting the right credit card for you, but it’s particularly important if you frequently travel to foreign countries. Why? Many credit card companies charge a fee for purchases made in another country, particularly if they use another form of currency. Typically, this fee is around 2 to 3 percent of the purchase price and is put in place in order to cover the cost of converting the foreign currency into U.S. dollars. In some cases, you may even incur this fee simply by shopping through a foreign merchant—even if you’re purchasing the item over the internet from the comfort of your own home. If you foresee this being an issue, make sure to look for a card—typically travel-focused cards—that waive this type of fee.
Cooling it with the credit card spending is a good thing, right? Yes, but with one big caveat. While you don’t want to ever put more on your credit card that you have in liquid cash (you want to be able to, ideally, pay it off in full immediately), some cards actually charge inactivity fees. While you won’t get hit with this type of charge for not using your card for a short period of time, lengthy periods of inactivity may put you at risk. What’s more, some cards have annual minimum spends, aka dollar figures you need to meet each calendar year.
Balance Transfer Fee
A balance transfer lets you move debt from one account to another. Why would you do such a thing? For one, having all of your debt in one place can be easier to manage. But beyond that, moving debt from a high-interest card to one with a significantly lower APR (annual percentage rate) can be a huge money-saver in the long run. The tricky thing? While it sounds like a great money move, there are costs and limitations associated with balance transfers. Depending on what they are, they can make or break the deal. Typically, you have to pay a balance transfer fee, which commonly ranges anywhere from 3 to 5 percent of the total transfer. You also have to keep in mind your balance transfer card’s limit. If it’s on the lower end, you may not be able to transfer your full balance anyway.
Cash Advance Fee
While you can swipe away at your leisure (within reason, if you’re being smart!), a credit card doesn’t give you access to cash the same way your ATM card does. That doesn’t mean it isn’t entirely impossible, though—it’s just more complicated… and more expensive. If you’re looking for a cash advance, you may be able to get one through your credit card, but your credit card company will likely charge you a fee. Typically, these types of fees are between 2 and 4 percent, but occasionally your lender may charge a flat fee instead. These types of advances are typically also subject to higher interest, so that’s also something to keep in mind if you won’t be paying the balance immediately. It’s worth noting: Experts generally don’t recommend taking these sorts of cash advances from your creditor.
You may think closing an unused account is a good idea, but check with your lender first. Some credit card companies charge a closure fee for canceling your card; other charge inactivity fees for simply letting your card sit untouched. Do your research to see what might be the best course of action, depending on your card’s terms and conditions. Also worth noting: Often, canceling a card—particularly one you’ve had for a long time—can ding your credit rating. Unless your lender charges an inactivity fee, you may be better off simply not using the card. Alternatively, you can occasionally put a nominal amount on the card and pay it off right away.