Credit cards are like loans, similar to revolving credit lines where you can charge purchases on the card up to the credit limit. You pay monthly and you can use again. The process goes on until the expiry date of the card. Upon card renewal, you start purchasing all over again. It is really very convenient and paying on due date, there are no credit card charges levied to your account. Using your credit card properly can provide you a range of benefits, including flexibility.
Credit cards are available in different kinds, variety of limits, repayment schemes and perks and freebies. However, this is very risky too because you can be enticed to make purchases thereby going out of budget. When you happen to default in your monthly payment, you are charged penalty. And when you pay only the minimum amount, you pay credit card charges. The charges are in form of interest that is basically high.
First of the credit card charges – service or application fees
Once your credit card application is approved, you will pay the first of the basic credit card charges. These are the fees – application, membership, processing or service fees. These are all the same fees. Collected fees can vary from one kind of credit card to another. However, for marketing purposes the application, processing, membership or service fee, however it is called by the credit card company, is waived for new accounts. For renewals, the annual membership fee may be waived also for good paying clients. These fees are one-time payments and in a fixed amount determined by the credit card company you have applied for.
Finance and other different charges
In addition to the service, application or membership fee, basic credit card charges include monthly interest. This finance charge varies from card to card. It also varies from card user to card user.
Interest is applied on the previous month balance plus transactions for the current month. This is charged only when your credit card balance go beyond the payment due date. All cards charge interest rates unless there is an offer of 0% interest. The interest is calculated on the basis of the credit card’s APR or yearly interest and average monthly balance. It is charged once for every billing cycle.
All other costs or charges on the credit card usage
What most naïve credit card users know are service fees and interest charges only. Finding additional charges in the billing statement is surprising. Are these hidden charges? No they are not but were not made clear to new credit cardholders.
• Late fee or penalty charge – A charge that is applied to your total balance when you fail to pay at least the minimum on due date. Until the required payment is made, these credit card charges will form part of the total amount due. The rate is usually higher than the interest rate.
• Cash advance charge – Some cards allow a holder to withdrawn through an ATM machine a cash advance. Every cash advance transaction will be charged with this fee and the amount withdrawn will carry interest that starts from the day you made the withdrawal. This has higher interest rate.
• Over-the-limit- fee – Credit card companies charge a fee for a balance that goes beyond credit limit. You are only allowed two-month over-the-limit.
• Balance transfer fee – This is a fee for transfer of balance to another credit card and is charged only one time.
• Returned check fee – Returned check used for payment of credit card bill is charged this fee and is levied every time a check is returned for whatever reason.
• Foreign transaction fee – This is one kind of credit card charges that is imposed when you purchased goods using foreign currency.
When you receive your credit card billing statement and you doubt the amount, the discrepancy may be due to credit card charges that you are not aware of. It is important that you review your statement carefully and report any doubts.