It’s likely a fair statement that all of us can say, at some point, we’ve only scanned the “small print” associated with everything from our satellite TV bills to our applications for credit cards. While that’s never recommended, we’ve all succumbed to the temptation of assuming we know what those disclosures say.
More than ever, it’s important we not underestimate those details. Doing so jeopardizes our financial security, especially considering it could affect everything from whether we’re approved for a mortgage to whether we receive a job offer.
There’s nothing worse than finding out a payment didn’t make it to the credit card company on time and as a result, a late fee, an automatic interest hike and sometimes even an over-the-limit fee has been tacked on. And worse, our credit rating has taken a hit because of it.
With that in mind, we thought it’d be a great time to delve into that fine print and provide some insight as to what all those fees mean and why not knowing those details could cost you.
Common Credit Glossary
If you follow our blog, you’ve surely seen mention of annual fees. These are different from application fees and service fees. An annual fee is what your credit card carrier charges you each year to use its credit card. They vary greatly; from $19 up to $500. That’s why it’s so important to understand what, if any, a credit card is going to cost you. That said, there are many credit card offers that include no annual fees, such as the Chase Freedom Visa, which was just honored as CBS MoneyWatch’s “Best Overall Card” for 2011.
Late payment fees are exactly what you might think: if your payment isn’t posted by the due date, you’re likely to be hit with a late payment fee. These fees will generally hover around $35, but again, it’s important to read the fine print before you apply for any credit card. Also, an over-the-limit fee is what your card carrier charges you if you go over approved credit limit. Need a card with more flexibility in your available credit? Consider the American Express Rewards Gold Card. With no pre-set spending limits, it’s a great way to keep your buying power open.
The Prepaid Credit Card and Secured Credit Card Difference
Think there’s no difference between a prepaid credit card and a secured credit card? Think again. Both credit cards require collateral in the form of cash deposited into a bank account or other account. And, too, with both cards, your deposit is usually what your credit limit is. After that, these two dynamics part ways. With a prepaid card, you use what you’ve already deposited. Once you deplete your balance, you reload your card.
With a secured credit card, the money you’ve deposited as collateral stays in the bank account. You make monthly payments just as you would a traditional credit card. The other primary difference is that a secured credit card reports to the credit bureaus so that you can begin to establish or rebuild your credit. A prepaid card does not report to the bureaus and will not affect your credit score.
The APR Factor
It can be more than a little confusing when trying to understand annual percentage rates. For instance, your interest rate on your mortgage and your interest rate on your credit cards are poles apart. A fixed interest rate is what you rely on each month to ensure your mortgage payments don’t fluctuate. A variable APR is what you see on your charge cards and credit cards. Therefore, your interest rates might fluctuate based on your credit report; a fixed APR also relies on your credit history, though it’s used to define that sole interest rate used to calculate your mortgage over the course of the loan that won’t fluctuate from month to month.
We’ve all heard of foreign transaction fees, but if you don’t travel outside the U.S., it’s likely those fees will never cross your mind. Basically, this fee kicks in any time you make a purchase in another country, whether it’s due to your physical travels or virtual shopping with a company overseas via the internet.
Yes, even our rewards come with fees. This charge is what the card company is paid anytime you redeem any of your rewards. These fees vary and some credit card companies don’t even have these reward redemption fees. Be sure to shop around for the best deal.
Of course, every credit card issuer has its own rules and guidelines so we recommend – yes – do your due diligence via the credit card offer’s terms and conditions.