Credit February 24th, 2009
This article comes from Steve Sildon, contributor and Managing Editor for Credit Card Assist, where he provides tips and advice about a variety of personal finance and credit-related issues.
Credit card fees have garnered a lot of negative attention in recent years and rightfully so. These fees are treacherous for most consumers and have only served to accelerate the financial demise for so many others struggling with financial uncertainty right now. But there are some misconceptions about how these fees are levied by credit card issuers and there’s a wide variety of fees that go unnoticed that many people are totally unaware of. It’s important to get a comprehensive look at all of the different types of credit card fees that exist, but there are also some techniques and practices that you can utilize to minimize or offset these fees completely.
The following are a few tips on some of the unknown facts about credit card fees and, should you encounter them, how to get around paying them entirely:
- Fees and Rates Are Negotiable: The bottom line is that all of the interest rates and fees that are levied against you as an account holder are negotiable. You can sharply reduce or in some cases even eliminate the various fees that they assess. Consumers first have to understand that the credit card business is extremely competitive by nature. Even today with the faltering economy, card issuers are still scrambling to maintain their portfolios and competing aggressively to keep their most profitable customers. Asking them to lower your ongoing interest rate is the first place to start. While the structure of rates and fees can appear complex to most of us, card issuers know exactly how profitable each and every one of their customer’s is. They earn income from the interest that they charge their customers for carrying an ongoing card balance in addition to the various late fees that they levy as well. Start by asking them to reduce the ongoing interest rate on your account. Then, should they arise, ask for any fees appearing on your account to be taken off. But the key is, you have to ask.
- Making Lots of Money from Your Transactions: Card issuers earn a substantial portion of their revenue from the transaction fees that they charge merchants for the purchases that you make with your card. Whenever a credit card transaction is made, anywhere from 1-4% of the net purchase price is paid by the merchant to Visa, Mastercard, Discover or American Express as a “transaction fee” for utilizing the card issuer’s brand specific network. You can use this knowledge to your advantage, especially if you are what the industry refers to as a ‘revolver’. A ‘revolver’ is a customer that typically uses their card frequently and carries a balance that incurs finance charges (which you should try to avoid like the plague). ‘Revolvers’ are extremely profitable customers for any credit card issuer. If you are a long term customer and a ‘revolver’ don’t be afraid to ask them to reduce your ongoing interest rate or ask them to eliminate a late fee, especially if it’s your first one or if it happens very infrequently. If the card issuer charges you an annual fee, ask them to eliminate that prior to the next billing cycle. The card issuers make enough money from your transaction fees that they can still waive some of these fees and still maintain profitability on your account.
Fees that You Pay are Tracked and Optimized: Card issuers typically keep a detailed record and a running total of how many fees & finance charges they made from your account. It’s not hard to figure out if you are a profitable customer for your card issuer or bank. Simply add up all of the fees and finance charges that you’ve paid over the entirely of your history with the company. Typically, it will cost a card issuer $100 – $150 to maintain each account. If all of the finance charges and fees that you’ve incurred over the life of the account add up to more than their cost to maintain the account, you are a profitable customer for them. If not, you are considered a “deadbeat” or an unprofitable customer. The reality is that most people do incur fees and finance charges well in excess of the cost to maintain the accounts for the card issuers. Should a fee or charge arise on your account, the next time you speak with a representative at your card issuer, you might say something like this: “If you just take a look at my account history, you’ll see that I am a profitable customer for you, with the interest charges and fees that I’ve paid in the past. That being said, would you be willing to waive this late/over limit fee for me?”
- Fees You Don’t Know About: Late-payment fees are not the only fees to watch out for. There are a number of these fees that many people are unaware of including:
1. Account Closure Fee – A fee to close my account? Sad, but it’s true; some card issuers will levy a small fee to just to close out the account.
2. Inactivity Fees – Some card issuers will levy a so-called ‘inactivity’ fee for failing to use a card within a six-month or year long period.
3. Balance Inactivity Fee – A fee that is charged for failing to carry a balance on the card. As unbelievable as it sounds, but they do exist.
4. Over-Limit Fees — If you accidentally charge more than your pre-set credit limit, the card issuer will not deny the transaction but will instead levy an ‘over-limit’ fee that’s typically in the $29 – $39 range.
5. Cash Advance Fees – Cash advance fees are typically 3% of the cash advance amount. There are no ‘grace periods’ on cash advances so the interest starts accruing from the day of the advance and the interest rate for cash advances is often several points higher than the normal purchase interest rate.
Before you apply for any card, request a list in writing from the card issuer of all fees the company charges. You can find a list of all related fees within the terms and conditions (in the super small print) of your credit card application.
Just be sure to know the facts about credit card fees, and above all, don’t be afraid to ask.