Understand credit card fees and how to avoid them
Credit cards can be a useful way of managing your finances, but there can be a charges and fees to watch out for. Our guide explains the different charges and how they work, so you won’t fall foul of them
Credit cards offer an array of benefits when used wisely. They include protection on purchases, savings on your borrowing costs – if you switch to a low or 0% interest card, and even paying cashback and rewards on your spending.
But credit cards also carry fees and charges and sometimes if can be tricky to know when or why you are being charged. Understanding the different potential fees can help you avoid them – so you don’t end up with any nasty surprises.
What does a credit card cost?
Credit card costs will range widely depending on how you use your plastic. There are several reasons you might be charged. The main cost associated with credit cards is interest if you don’t clear your balance every month, for example. The actual amount of interest you’ll pay will depend on your specific card, but the typical annual percentage rate (APR) charged on credit cards is usually around 19%.
There are other charges that can catch you out, such as late payment fees if you don’t make the minimum repayment on your card every month. Fees and interest can also be applied immediately if you use your credit card to make a cash machine withdrawal. In addition, some rewards or cashback cards charge a monthly or annual fee.
It’s illegal for retailers or service providers to charge consumers for paying by credit card in the UK - such surcharges were banned in 2018. But although against the rules of some card networks, some retailers may still impose a minimum spend on credit card transactions.
What are the different types of credit card charges?
The table below outlines the range of different charges which could apply on your credit card and an example of some of the typical fees and rates.
Credit card fee: | Description | Typical charge |
|---|---|---|
Interest payment | The amount you’re charged if you fail to clear your outstanding balance every month (unless you have a specific interest-free offer period, for example on balance transfers or purchases) | Typical standard card APR 19% |
Late payment | A fixed fee if you don’t pay at least the minimum monthly repayment required off your card balance every month | Around £12 |
Breaking credit limit | A fixed fee you’ll be charged if you spend more than your credit limit | Around £12 |
Annual usage | Cashback, rewards and other ‘perks’ cards may charge an annual fee to the cardholder Some rewards cards might waive the fee in the first year as an incentive to sign up. | Fees vary widely depending on the card, but could be as high as £250 per year |
Cash machine withdrawals | Most credit cards charge if you’re withdrawing money from a cashpoint. Unlike other purchases, you’re often charged interest from the moment you take out the cash | Around 3% |
Balance transfer | A balance transfer credit card allows you to move a balance from another card, but you’ll usually have to pay a percentage of the balance transfer | Around 2%-3% |
Overseas transactions | Most credit card providers charge a non-sterling transaction fee each time you use your card abroad | Around 3% |
How do I avoid paying interest on my credit card?
You can avoid paying interest on your credit card by:
Paying your balance off on time and in full Clearing your balance in full every month is the best way to avoid interest payments on your card. If you’re worried you might forget, set up a direct debit to clear the full amount
Avoiding withdraw cash Interest is often charged from the moment you take out cash on a credit card from a cash machine, so it’s usually best avoided
Getting a 0% credit card A 0% interest credit card means you can make purchases or avoid paying interest on card debt for a set period. The main options are for interest-free credit cards are:
0% purchase card. This allows you to spend on your credit card without having to pay off the balance or any interest for a fixed period ie. three or six months. It can be handy to spread the cost of a large purchase. You’ll still be required to make the minimum monthly repayment amount on the card.
0% balance transfer card. These cards enable you to shift an outstanding balance from one credit card - where you might be paying high interest - to a 0% interest card. There will often be a one-off fee for the transfer, which is typically between 2% and 3% on the best balance transfer deals. As with 0% interest purchase cards you’ll still be required to make at least the minimum monthly repayment on your card.
How can I avoid credit card charges?
There are a number of steps you can take to avoid ever having to pay interest or charges on your credit card borrowing. These include...
Paying off your balance on time and in full
If you clear your card balance every month and never carry over any debt you won’t have to pay interest on what you’ve spent. If you’re struggling to pay the entire amount, pay at least the minimum monthly repayment amount to avoid a penalty fee.
Setting up a direct debit
By setting up a monthly direct debit from your current account to clear your credit card balance, you can avoid the risk of forgetting to pay your bill.
Paying straight after payday
If you set your card repayment date to the day after you’re paid, you can prioritise paying off your credit card when you’ll be sure to have the money in your bank account.
Knowing your credit limit
You’ll always have a credit limit on your card, so be aware of this maximum limit and when you might be approaching it. Online banking and banking apps can help you keep tabs on your spending, for example.
Setting up alerts
Credit card companies generally allow you to set up alerts - often a text message for example - that will warn you if you’re approaching your credit limit. You can then clear some of the balance before continuing to spend.
Get a specialised travel credit card
Using a credit card abroad can be expensive with foreign currency transaction fees and poor exchange rates. But there are some dedicated travel credit cards that don’t charge a fee for spending overseas and can offer better exchange rates.
Will credit card charges affect my credit score?
Missed or late payments will not only to cost you financially, but may leave a negative mark on your credit file – which could damage your credit rating, potentially making it more difficult and expensive to borrow in the future.
If your interest charges start to build up this could also damage your credit score because your card balance will be higher relative to your overall credit limit (known as your credit utilisation ratio). If you’re close to your credit limit, for example, and you’re only paying the minimum monthly repayment amount, lenders may feel you are struggling with your finances.
What should I do if I have been charged incorrectly on my credit card?
If you feel you’ve been charged in error, contact your credit card provider immediately and explain the situation.
You can contact them by calling the number on the back of your credit card, logging in to your account, or writing a letter of dispute.
Send as much evidence – receipts or documents – as you can, to help you resolve the issue quickly.
Other useful guides
What type of credit card is best for me?
Guide to credit card protection
Compare credit cards with MoneySuperMarket
It’s quick and easy to compare credit cards with MoneySuperMarket. We’ll ask you a few straightforward questions then search providers across the market to find card deals that suit you best.
We’ll show you the cards you’re most likely to be accepted for, so you’ll know where you stand before you apply. Searching in this way has no impact on your credit file or score.
You can also view full product details and extra features and will also be able to see if the card comes with any rewards, fees or added perks.