Many of us are aware of some of the more common charges associated with using a credit card, for example exceeding the credit limit, but it is the lesser known hidden charges that are costing credit card users literally millions of pounds every year and for many this can be one the main reason for their decline into further financial debt.
Head of banking at Moneysupermarket.com, Kevin Mountford believes credit cards need to start being more open with their customers as “Many cards appear to have been designed to catch consumers out with late fees, cash advance charges and differing interest rates depending on transaction types”. One company who is taking this seriously is Nationwide, who have recently launched a campaign to promote fair use of credit cards and to help customers understand what they are signing up to. By getting rid of some of the charges on their products they hope to encourage other banks, building societies and credit companies to also reconsider their approach.
To help with this understanding and to help ensure you don’t get stung by hidden charges, Money Lending Expert has put together a list of the potential charges you might end up facing when you next use your credit card:
Credit Limit Exceeded
Let’s start with the reason that most of us all probably be already aware of. When you are accepted for a new credit card a limit will be set as to how much you are allowed to spend up to. The amount will vary depending on factors such as your credit score, credit history, how much you earn and whether you have a history with that particular company, for example you may already have a current account with them. If you go over this amount, no matter by how much, the credit card company will charge you a set fee, which is usually about £12. Matt Sanders from GoCompare.com advises, “Most cards now allow you to keep tabs on your spending online or through an app. Some let you set notifications when you near your card limit to help you avoid going over”. Make sure you know what your credit limit is and regularly check your balance through the use of an app. If you can set up a reminder service, even better!
Personally, we would never advise using a credit card to withdraw cash from an ATM, but if you do find yourself in a situation where that is literally your only option, be prepared to pay a charge. The cost of withdrawing cash on a credit card is often worked out as a percentage of the total amount you withdraw, with a minimum fee set at approximately £2-£3. There will also be interest added onto this amount starting from the day you make the withdrawal. Andrew Hagger, who works for MoneyComms warns, “Most issuers charge a 3 per cent handling fee, which would cost £15 to withdraw £500. Virgin charges 5 per cent, which would cost £25″. Using a credit card for cash won’t just cost you more, it may also affect your credit score, as certain lenders view this as a sign of poor money management and will be reluctant to accept any credit or loan applications from you in the future.
If you’ve set up a Direct Debit to pay for your credit card each month and, for whatever reason, there isn’t enough money in your account, the credit card company is likely to charge you a returned payment fee to cover any admin fees and for the inconvenience to them. This amount can be anywhere between £5 and £12 so always ensure you have money to cover your repayments.
There are certain benefits to using a credit card abroad, but do your research wisely and choose the best card as it can sometimes work out incredibly expensive. Every time you use a credit card abroad a loading fee is automatically added onto the exchange rate and this fee is rather sneakily not always included on your statement, so most people don’t even realise they’ve paid it. The fee can be up to 2.99% on both purchases and cash withdrawals, although some issuers, such as Halifax, Lloyds, Post Office and Saga, offer specific worldwide credit cards that are exempt from foreign usage charges.
Obviously the whole point of owning a credit card is to make purchases on it, but sometimes you can be charged for the privilege of this, without even realising. This particular charge is more frequent when you make a purchase online and often happens at the final stages of a transaction. Items such as flight tickets, event tickets and holiday packages often add a charge for paying by credit card to cover the charge they have to pay to process the payment. It is usually worked out as either a percentage of the total amount or is fixed at a set amount. We would advise that if the amount is under £100 you should use a debit card instead. If it is higher than £100 you are better off swallowing the extra fee in return for the extra protection a credit card gives you should there be a problem with your purchase or should the company fail to provide you with what you expected.
So, turns out you can be charged a fee for using your credit card and bizarrely you can also be charged a fee if you don’t use it! If you own a credit card and haven’t used it for a certain length of time, some credit cards will hit you with what is known as a dormancy fee. Depending on the credit card company this fee can range from £2 up to as much as £20. Always ensure you check the terms and conditions thoroughly of any new card you take out and every so often go through your wallet to check for any rogue cards that you may have forgotten about and for which you may be secretly being charged for.
If your credit card repayment is late or worse, if the payment is missed entirely, be prepared for a late payment charge. In all honesty, why shouldn’t credit card companies penalise you for not paying them their money back? In order to avoid missing a payment, we would advise setting up a Direct Debit, so that payment is automatically taken care of. Late payment charges cost approximately £12, but perhaps more damaging is the affect on your credit score, which means the chances of borrowing money in the future is to likely be reduced.
If you own a 0% balance transfer card you may not realise that only the transferred balance is eligible for the 0% rate and any new spending will be charged at a higher interest rate. It can seem a very inviting prospect to transfer to a different card in order to buy yourself some time and take advantage of the 0% interest, but there will always be a transfer fee involved and these can be incredibly expensive, so much so that it may not work out as financially beneficial than if you’d have stuck with the original card. As a general rule of thumb, the longer the 0% period, the higher the transfer fee, so remember to sit down and work it all out before switching cards.