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 numerous other fees.
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.
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 them determine how risky it is to extend credit to you.
• Employment status and income: This will help the credit card company determine how big 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.
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Cost of a Credit Card: What to Consider When Choosing a Credit Card
How much does a credit card cost? The answer to this question varies. And as a result, the costs associated with maintaining a credit card are some of the most important points of comparison when choosing between different cards.
Interest Rates
How credit cards work is by charging you an interest rate, also known as annual percentage rate (APR) on credit cards. 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 currently 14.56%, according to 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.
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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.
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.
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Annual Fees
Annual fees help credit card companies cover the costs of whatever perks and rewards they offer their customers. 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 for using your credit by businesses that are not your credit card company. For example, a credit card convenience fee is a fee that’s charged by a merchant and added to the cost of a transaction.
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.
When shopping for credit cards, carefully compare fees and interest rates. With a credit card from SoFi, for instance, you can avoid foreign transaction fees. Plus, your APR will be lowered by 1% after 12 monthly on-time payments of at least the minimum due.
The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1
FAQ
Do you have to pay for a credit 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. For example, the annual fee is usually charged as a lump sum once each year. You may incur other fees, like late payment fees, only when you miss a payment.
Can I use a credit card for free?
If you pay off your balance each month, you may not owe any interest to your credit card company. However, you may still be on the hook for whatever fees your card may charge, such as an annual fee.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
1Members earn 2 rewards points for every dollar spent on eligible purchases. If you elect to redeem points for cash deposited into your SoFi Checking or Savings account, SoFi Money® account, or fractional shares in your SoFi Active Invest account, or as a payment to your SoFi Personal, Private Student, or Student Loan Refinance, your points will redeem at a rate of 1 cent per every point. If you elect to redeem points as a statement credit to your SoFi Credit Card account, your points will redeem at a rate of 0.5 cents per every point. For more details please visit SoFi.com/card/rewards. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.
Photo credit: iStock/Meranna
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