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When you use a credit card, you are borrowing money to make a purchase and agree to repay it later, often with interest. Information about interest rates, fees, and terms can be found in the cardholder agreement and monthly billing statements.
Responsible credit card use, such as paying bills on time, can help build a positive credit history, which may affect employment, housing, insurance, and borrowing opportunities. Credit cards are not free.
What fees may apply when using a credit card?
Annual Fee: Many credit cards charge an annual fee. Check your cardholder agreement or contact your credit card company for details.
Convenience Fee: A convenience fee is a charge passed on to customers to cover the cost of using an alternative payment method that is not standard for a business. Convenience fees are allowed in all 50 states.
Businesses that traditionally accept cash or check but allow payment by debit or credit card for convenience may charge an additional fee for that convenience. For example, a doctor’s office may typically accept payments in person. However, if the doctor’s office offers customers the option to pay by phone, it may charge an additional fee.
- You can be charged a convenience fee to pay with your credit card.
- Avoid convenience fees by using standard payment methods like cash pr automated clearinghouse (ACH).
- Convenience fees are a set amount and not a percentage of the transaction. These fees must be posted publicly.
Interest: Credit cards let you carry a balance from month to month, but can charge you interest on your unpaid balance. The amount of interest charged is based on the card’s annual percentage rate (APR), or interest rate. The higher the APR, the more interest you will pay. The APR also affects how your minimum monthly payment will be. If you do not make your payment on time, your APR could increase a lot. On most credit cards, you can avoid paying interest if you pay the full balance by the due date.
Late Fee: A late fee may be charged if a payment is not made by the due date.
Miscellaneous Fees: Some credit cards charge a variety of other fees including fees for cash advances, balance transfers, exceeding the credit limit, or monthly maintenance fees.
Service Fee: A service fee is a type of convenience fee program with a modified set of rules. This program is restricted to merchants within specific merchant category codes (MCC), such as those in education and government. American Express, Visa, and Mastercard each have unique rules governing these programs. Visa refers to the Education/Government Convenience Fee Program as the “Service Fee” program, while Mastercard and American Express use the term “Convenience Fee Program” regardless of MCC. Only certain qualifying merchants are eligible for this program.
Surcharge Fee: A surcharge is applied by merchants to offset credit card processing fees. Unlike convenience fees, a surcharge is specifically for transactions made with credit cards and is calculated as a percentage of the transaction amount. Surcharges are applicable only to credit card transactions, not permitted in all states, and require compliance with specific rules set by card networks and legal regulations.
Effective April 15, 2023, Visa set a maximum surcharge cap of 3%, which applies across all card brands. Merchants should consult their merchant account provider and legal counsel to ensure compliance with state laws and card network rules before implementing surcharges.
How is a surcharge fee different from a convenience fee?
Surcharges are applied only to credit card transactions to cover merchant processing fees. Convenience fees are charged to both credit cards and debit cards, when a merchant offers consumers the privilege of using an alternative, non-standard payment methods and are allowed in all 50 states.
What protections do credit cards offer?
Credit cards are often safer than debit cards because you have dispute rights that can cover many problems. This is especially helpful when you shop online. It can also help with in-person shipping when, for example, there is an error with your purchase. So if a company charges you twice, charges the wrong price, bills you for something you never received, or if you get an incorrect or damaged item, you can dispute the charge with your credit card company and possibly get your money back.
Consumer tips to avoid fees
- Understand your payment options.
- Choose payment methods that do not include additional fees whenever possible.
- Consider paying in cash. Some merchants offer a discount when using cash.
- Ask about payment fees before completing the transaction.
- Review online purchases before clicking to submit payment,.
- Look for posted notices about fees at in-store checkout areas, like the cash register.
What is card skimming?
Skimming refers to the method by which information is stolen from an account access device, such as a credit card, debit card or ATM card. Typically card skimming occurs through the use of a handheld electronic swiping device; however, more sophisticated criminals have been able to manufacture skimming components that imitate legitimate card-reading devices like those found on ATMs and fuel pumps.
Although you may not be able to prevent crime from happening, there are ways to protect yourself from this type of fraud:
- If at all possible, do not let your credit or debit card out of your sight.
- Take notice of your surroundings. If an ATM or fuel pump looks as if it is been tampered with, do not use it and notify the owner or management.
- Always review your account statements for any suspicious activity.
- If you detect an unauthorized charge, notify your financial institution as soon as possible. Timely reporting of an unauthorized charge will mitigate your liability.
CARD Act protections
Federal law now provides additional protections to consumers. The Credit Accountability, Responsibility and Disclosure (CARD) Act provides the following additional protections for consumers:
- Low advertised interest rates, known as “teaser” rates, must remain in effect for at least six months after the card is issued.
- Card issuers must periodically review rate increases and must reduce the rate if a higher rate is unfounded. In this case, however, exceptions are allowed for cards in which the rate is variable based on an existing independent index or where the rate increase is due to the expiration of a promotional rate.
- In most cases an increased rate cannot be applied to an existing balance.
- Payments must be applied first to the balance with the highest interest rate.
- Issuers may not charge processing fees for payments made online, over the phone or by mail. However, the issuer may charge a fee for expedited processing.
- The issuer must mail the monthly statement at least 21 days prior to the payment due date.
- Penalty fees, including late fees and over limit fees, must be reasonable and balanced as determined by the Federal Reserve.
- Fees to obtain a credit card cannot exceed 25 percent of the initial credit limit.