What are credit card charges?
Although using a credit card can cost you nothing if you are careful, providers make their money through a range of fees and charges that they can add onto your balance. These include:
Interest if you use the card to borrow money
Annual or monthly fees that come with some cards
Fees for breaching your account's terms, such as making late repayments, exceeding your credit limit or not using the card
Charges for using extra features like withdrawing cash, using the card abroad and balance transfers
The main cost of a credit card is usually the interest rate, which is charged if you use the card to borrow money.
When you receive your bill each month, you can choose how much you repay (although your provider will set a minimum amount). If you do not repay the full amount, interest is charged on the balance.
For example, if you left a balance of £100 on a card with 20% APR, it would accrue interest of £20 per year.
You can avoid paying interest on your credit card by repaying your balance in full every month. If this is not possible, you can pay less by finding a card with a lower APR.
When you choose a card, it will advertise a representative APR (Annual Percentage Rate). This will not necessarily be the APR you will be offered - it is just an example rate that must be given to at least 51% of applicants.
The actual interest rate you get will be based on how risky the provider thinks you are after they have run a credit check. A higher APR is likely if you have poor credit.
Monthly and annual fees
Many cards come without annual fees and some waive them during your first year.
Some credit cards charge a fee that you have to pay annually or monthly. These fees generally cost from £12 to £150 a year.
If you have a monthly fee, it will be included in each credit card bill, so you will pay off the fee as long as you make at least the minimum payment.
For example, if you had a card with a monthly fee of £3 and repaid £50 a month, £3 of this would pay off the fee and £47 would go towards the card's interest and clearing the balance.
Annual fees are usually added to your bill each year in the month that you took out your credit card.
Annual or monthly fees can be worth paying if the card offers benefits like cashback worth more than the fee you pay.
For example: A card charges an annual fee of £100 but you could earn air miles worth £300 each year. The fee would be worth paying if the best fee free card would give you less than £200 of air miles over the same period.
Late payment charges
When you receive your credit card bill each month, it will specify a minimum payment amount and a date you need to make the payment by.
If you do not pay this by the due date, you will be charged a late payment fee of around £12. Some providers also charge this each time a direct debit, cheque or other payment type bounces when you pay them.
The easiest way to avoid late payment charges is to set up a direct debit to pay at least the minimum amount every month.
Missing a payment can also affect your credit rating and lead to your provider increasing your interest rate or withdrawing an introductory 0% APR offer.
If you pay off the full amount in time each month, you will not be charged any interest.
Paying back just the minimum amount will bring down your outstanding balance far more slowly, meaning you will pay much more interest.
Paying more each month will clear the balance faster and at a lower cost overall.
For example: if you paid £100 a month towards a balance of £2,000 on a card with an APR of 17.99%, it would take you two years and cost £321.08 in interest.
However, if you only paid the minimum amount, it would take over 127 years and cost thousands in interest.
Set up a direct debit to pay a fixed amount that you can afford rather than just the minimum amount to clear your balance quicker. You can speed it up by making extra payments on top of this when you can afford to.
The exception is if you have a card with an interest free period on purchases, balance transfers or money transfers. You can pay just the minimum amount each month without being charged interest until the 0% deal ends.
Charges for exceeding your credit limit
Credit card providers specify a credit limit, which is the maximum you can owe on your card at any point.
For example, if your credit limit is £2,000 and you carried over an outstanding balance of £1,000 last month, you will exceed your credit limit if you then spend more than another £1,000.
If you go over your credit limit you will be charged a fee of around £12 by your provider.
You can avoid this by finding out your credit limit and keeping track of how much you have spent on your card each month. You can check your limit and current spending by signing into your online account, using your card issuer's mobile app or phoning your provider.
If you know that you are likely to spend too much before the end of the month, ask your provider to increase your credit limit.
If you accidentally go just over the limit, contact your provider straight away because they may agree to let you off. It may help if you offer to make an immediate repayment to bring your balance back inside your limit.
Some American Express credit cards and store cards charge an inactivity fee if you go too long without using them.
For example, a provider could charge £20 for every 12 month period that you do not spend on your card and your balance does not change.
Although not many cards charge dormancy fees, check your terms and conditions or ask your provider if you do not use your card frequently. If have a card you do not use and you will be charged for inactivity, consider cancelling it.
Cash withdrawal charges
Using your credit card at an ATM can be very expensive because you will be hit by three main charges:
Withdrawal fee: This is charged as a percentage of the amount you take out. This is usually about 3%, although there is usually a minimum fee amount of a few pounds.
Higher APR: The interest rate charged on cash advances will usually be higher than your APR on purchases - often around 27.9% but sometimes much more.
Immediate interest: You will be charged interest on the amount you withdraw straight away, whereas normal purchases on your credit card are interest free until after when your bill is due, often more than 50 days later.
For example, if you withdrew £100 from a cash machine using a credit card and paid it back 36 days later, it could cost you £105.52 in fees and interest.
If possible, avoid taking out cash with your credit card. If you have no other options, withdraw the full amount you will need in one go, use your credit card that has the lowest withdrawal fees and pay off the balance as soon as you can.
Charges for spending abroad
If you use your credit card abroad, it could charge you a loading fee of around 2.99% each time you spend. That means a charge of £2.99 for every £100 you spend.
The funds will also be converted into the country's currency at an exchange rate that is likely to be less competitive than the rates you get when you get travel money as cash.
Taking cash out abroad can be even more expensive because you will be charged interest on the amount withdrawn straight away - usually at a rate of 27.9% or more. You will also be charged an ATM withdrawal fee of about 3%.
Balance transfer charges
This fee is worked out as a percentage of the balance you want to transfer. For example, if you transferred a balance of £2,000 to a card with a fee of 2.5%, this would cost £50.
You can save by comparing cards and choosing one with a low fee - some balance transfers even come with no fee at all. Read our guides to work out which deal will work out cheapest overall:
How do you find out how much your provider charges?
Contact your provider, check on their website, sign into your online account or check your latest statement and the paperwork that came with the card.
Is there a limit on credit card fees?
Credit card charges for late payment or exceeding your credit limit should be no more than £12 each time they happen.
What if you have been incorrectly charged on your credit card?
If your provider has made a mistake and you have been charged incorrectly, ask them to refund the fee immediately.
What if you have been charged too much?
If you are charged a fee of more than £12 for missing a payment or exceeding your credit limit, you may be able to get a refund, as explained in this guide.