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Watch Out for Credit Card Fees

by Barbara Marquand

Although new credit card rules provide protections against arbitrary rate hikes, you could end up paying more in fees for credit cards as the industry explores ways to replace billions of dollars in lost revenue.

Credit card companies can't change major credit card terms, such as interest rates and annual fees, in the first year of an account, as long as you pay on time. After that, they have to give you 45 days notice and a chance to opt out. Fees can't total more than 25 percent of your initial credit limit, so in the first year of an account with a $500 credit limit, you can't be charged more than $125 in fees, not including penalties for late payments.

Read credit card notices carefully to catch any proposed fee increases, and read the fine print of credit card offers when shopping for a new card. Beware of these fees:

• Annual Fee. Issuers are introducing new credit cards with annual fees and are experimenting with incentive programs to encourage customers to upgrade to credit cards with annual fees.

Credit Card Application and Set-up Fees. The application fee is charged when you apply for the card, and the set-up fee is charged when you open the new account.

• Cash-Advance Fee. Typically you pay a fee when you use your credit card to get cash--one more reason to avoid cash advances, which also carry a higher interest rate than purchases.

Balance-Transfer Credit Card Fee. Transferring a balance from one credit card to another to get a lower interest rate might be a smart move, but only if the savings outstrip the costs. Balance-transfer fees run as high as 5% of the balance transferred--that's $250 on a $5,000 balance.

• Late Payment Fee. You get a double-whammy hit to your pocketbook if you pay late on your credit card bill. Nine out of 10 borrowers are charged a $39 fee if they're late with a payment, regardless of the balance they carry, according to the Center for Responsible Lending. If you're more than 60 days late, your credit card company can hike your interest rate.

• Over-Limit Fee. Under the new credit card regulations, you have to authorize your credit card company to let you exceed your credit limit and charge this fee. If you don't give authorization, your transaction is rejected.

• Credit-Limit Increase Fee. You pay this fee when you ask for and are granted an increase of your credit limit.

• Miscellaneous Credit Card Fees. Other fees you may encounter include changes on foreign purchases, paper statements, and account inactivity.

Published 04/29/10 (Modified 03/29/11)


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