No matter what you do, it generally costs you money to borrow money. In the case of credit cards, you’ll pay interest on any balance remaining after your statement due date, and you may also be subject to other fees, including an annual fee.
Understanding how much a credit card costs is important, as it can help you compare cards and choose one that’s right for you at the right price. Read on to learn more about the potential costs of a credit card.
Table of Contents
Key Points
• Credit cards typically cost money due to interest charges on carried balances and various fees.
• The application process for a credit card is usually free, but costs are incurred in the form of an annual fee and interest charges.
• The main costs to consider when choosing a credit card include interest rates, balance transfer fees, foreign transaction fees, late payment fees, and annual fees.
• Interest rates vary based on an applicant’s credit score, with lower scores often resulting in higher rates.
• Responsible credit card use, such as paying off the balance in full each month, is key to minimizing costs and avoiding debt.
How Much Does It Cost to Get a Credit Card?
The application process for a credit card is free. The process starts by choosing a card that offers the right terms, interest rates, and rewards, if applicable. For example, you may want a card that offers cash back on certain purchases, or if you travel frequently, you may want to choose a credit that offers airline miles.
Once you’ve decided on a card, the application will typically ask you for the following:
• Name: Credit card companies will need your full legal name.
• Address: Most credit card companies will require you to have a U.S. address.
• Social Security number: The credit card company will use this to make a “hard pull” inquiry on your credit report, which will help it determine how risky it may be to extend credit to you.
• Employment status and income: This will help the credit card company determine how large a line of credit you can afford.
• Country of citizenship and residence: Not all companies will offer cards to noncitizens.
• Financial assets and liabilities: The credit card company will want to know what other debts you are currently paying off.
Though applying for credit doesn’t cost anything, that doesn’t mean that credit cards are free. Once approved, you do have to pay for having a credit card in certain circumstances.
Recommended: Does Applying for a Credit Card Hurt Your Credit Score?
Cost of a Credit Card: What to Consider When Choosing a Credit Card
The costs associated with maintaining a credit card are some of the most important points of comparison when choosing between different cards. Here’s how they can stack up:
Interest Rates
Credit cards work by charging you an interest rate, also known as annual percentage rate (APR). Interest applies when you carry a balance from month to month. If you pay off your balance each month, you won’t owe interest.
The average commercial bank interest rate on credit card plans for all accounts is 20.97%, according to the latest data released by the St. Louis Federal Reserve. However, interest rates tend to vary from applicant to applicant, largely depending on their credit score.
The better your credit score, the lower the interest rate you may be offered. Banks tend to see individuals with lower scores as at greater risk of defaulting on their loans, so they tend to offer the applicants higher interest rates to offset some of that risk.
Balance Transfer Fees
A balance transfer credit card allows you to transfer the balance on your existing card to another card with a lower interest rate or no interest for a period of time. Most balance transfer cards will charge a fee from as low as 3% to as much as 5% in order to do so.
If you’re transferring a large balance, this fee can quickly add up to a hefty sum, so be sure to carefully compare the cost of the balance transfer to the amount you’d be saving on interest by switching to the new card.
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Extra Charges When Spending Overseas
Foreign transactions fees are a surcharge that credit card companies tack on to purchases you make overseas that require the processing of foreign currencies or that are routed through foreign banks. These fees are typically around 3%, and if you’re a frequent traveler, they can start to add up.
Check the fine print in the terms and conditions before signing up for a card to see how much you’ll be charged. In some cases, your card may not charge anything.
Late Payment and Credit Limit Fees
Though you can carry a balance on your credit card, there is still a monthly credit card minimum payment that you’ll have to make. Do everything you can to make this payment on time. Not only can missed payments hurt your credit score, but your credit card company may also charge a fee. Miss another payment and that fee could go up. For example, while the late payment charge on your first missed payment could be $28, the second could jump up to $39. Typically, the late fee cannot be more than the minimum amount due on the account. You can learn more about the finer points of credit cards by exploring this credit card guide.
Another potentially painful side effect of missing a payment: Your credit card company could increase your interest rate, increasing the cost of your unpaid balance and making future borrowing more expensive.
Annual Fees
Annual fees help credit card companies cover the costs of whatever perks and rewards they offer their customers. They may range from $50 to around $800, although there are cards that advertise no annual fee. The more perks a card comes with, the higher the annual fee may be. This fee is typically charged as a lump sum once per year, usually in the same month in which you opened your card, and you’ll pay it off as part of your regular credit card bill.
Convenience Fees
Sometimes you’re charged fees (called credit card convenience fees) for using your credit by businesses where you make a purchase.
Recommended: How Do Credit Card Payments Work?
Tips for Using Your Credit Card Responsibly
Credit cards are what’s known as revolving credit. They allow you to carry a balance from month to month, making only the minimum payment, and that balance can increase as interest gets added. The bigger your balance, the more money you’ll owe in interest, and your debt can quickly grow out of control. That’s why it is important to use your credit card responsibly.
Here are a couple credit card rules to consider in order to do so:
• Always aim to pay off your credit card balance in full each month. For most cards, you will not owe any interest on purchases if you do, eliminating one of the biggest costs of having a credit card.
• Avoid making purchases you won’t be able to pay off each month. Sometimes these expenses are unavoidable, especially in an emergency. If you can’t pay off your debt within a month, aim to do so as quickly as possible.
• Make a point to review your credit card statement. While it might seem like a slog, reviewing your credit card statement can offer helpful insight into your spending habits. It can also ensure you notice any unauthorized credit card usage or a billing error, in which case you may be able to request a credit card chargeback.
The Takeaway
Maintaining a credit card typically comes with a variety of costs. In some cases, you can avoid credit card fees and interest, such as by paying off your balance in full and on time each month. Also be aware that interest rates and fees are often negotiable. If you’re a longstanding customer or have a particularly good credit, you may have a chance at having a few fees waived or at least lowered.
Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.
FAQ
Do you have to pay for a credit card?
It is typically necessary to pay for a credit card, but how you pay may differ depending on the card issuer and type of card. Credit card companies may charge a variety of fees including annual fees and late payment fees. You will also have to pay interest on whatever balance you carry from month to month.
How much are credit card fees monthly?
Credit card fees are typically not charged on a monthly basis. Credit card fees are more often charged as a lump sum once each year and typically range from $50 to around $800. You may incur other fees, like late payment fees, only when you miss a payment.
Can I use a credit card for free?
There are credit cards that charge no annual fee. If you obtained one of these cards and paid off your balance each month (thus avoiding interest charges), you might be able to successfully use a credit card for free.
Photo credit: iStock/Meranna
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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