Building your credit can feel like a daunting task, especially after hearing several horror stories about people drowning in credit card debt. Additionally, the various fees associated with credit building can catch you unaware and make the process harder than it needs to be.
No one should operate in the dark when it comes to the important task of building credit. This article will outline various fees you should be aware of as you set out to build your credit rating. Knowing what to look for in advance will enable you to dodge most of the obstacles that can trip you up as you make your way toward becoming financially independent.
1. Annual Fees
The first thing to be on the lookout for are any and all annual fees. Not all credit cards charge annual fees, but you might be surprised when your first choice comes bundled with one. It’s always better to know beforehand so you can budget accordingly.
One thing to know about annual fees is that they’re not always so bad. Sometimes the level of service and protection you receive makes the annual fee well worth the expense.
A modest annual fee of approximately $50 is only a couple of dollars a month. Oftentimes you can easily earn that back through various reward programs. If you hate the idea of an annual fee, you can look into a credit builder card, as they most often don’t have an annual fee. Instead, you typically have to place a deposit in the amount of your line of credit prior to the card being issued.
A huge part of building your credit rating is making sure you pay your credit card balance on time. Some cards let you use your cash-back rewards to pay off your line of credit. Paying a small annual fee for better cashback rewards can help you pay off your card more easily.
2. Late Fees
Speaking of making all of your minimum payments on time, late fees are the single most destructive means for damaging your credit score. Failing to pay off your balance (or at least submit minimum payments on time) reflects negatively on you as a trustworthy consumer. Information sent to major credit bureaus will show up on your next credit report.
Not only will your credit score suffer due to late payments, but so will your wallet. Late fees can be as high as $40 for each incident. Frequent tardiness can result in hundreds of dollars in fees.
Here’s a bit of good news, though. Late fees don’t get reported until approximately 30 days after the missed deadline. This gives you some buffer time to avoid having it land on your report and lowering your score. However, you’ll still have to pay any fees to the credit card company.
3. Balance Transfer Fees
When you move credit card debt from one card to another, that’s called a balance transfer. Many consumers do this to get a lower interest rate on a card for which they previously didn’t qualify. This strategy, when implemented correctly, can save a lot of money in the long run.
Sadly, sometimes it’s not as easy as it sounds. A balance transfer often comes with its own fee that must be covered. You can expect a charge of approximately three to five percent of the amount being transferred. Move enough credit card debt and that fee could add up quickly.
4. Foreign Transaction Fees
Many credit card users save their cards for special occasions. This might be motivated out of a low-level fear of becoming addicted to using credit to spend money they don’t have. Whatever the reason, many consumers often choose to reserve the card for eating out with the family or making some other special purpose.
For others, credit cards are restricted only to travel. This makes a lot of sense given that many credit cards focus on travel rewards. However, be aware that some banks charge foreign transaction fees before you take your card around the world. If you only plan to use your credit card at a Mexican resort, you might come home to a lot of fees for which you weren’t prepared.
5. Returned Payment Fees
A returned payment fee will be assessed whenever you attempt to pay off your credit card balance and the payment fails. This is much like what happens when a check bounces.
Some credit cards treat this as a late fee, chalking it up to a missed payment. However, be advised that some creditors will charge a returned payment fee instead. Make sure you’re keeping track of all your available balances to prevent this type of situation from occurring. This type of fee is easily avoided with just a bit of diligence.
6. Interest Charges
It’s important to note that interest is not reported to the major credit bureaus. However, interest is the reason why credit card debt can become so difficult to pay off. If you allow interest to build up, you could be stuck paying off your balance for years. Far too many consumers end up falling headlong into this trap, so you’ll want to pay close attention to interest rates.
Being able to consistently pay off your account balance is one proven method for successfully building up your credit score. The secret isn’t necessarily to find the best interest rate, it’s to pay off your card, in full, on time. That way, the interest rate never actually kicks in. You won’t end up paying out of pocket for all those interest charges that tend to snowball over time.
7. Cash Advance Fees
Need cash? Take your credit card to an ATM and use the cash advance feature to get some physical spending money. One pro tip; this may not actually be a good idea for everyone.
Not only are cash advances a precarious way of approaching your finances, but you’ll likely pay a fee for them. There are fewer places nowadays where you can only use cash so stick with your card whenever possible. Who knows? Even your neighborhood lemonade stand might be using a cash app such as Venmo to process transactions these days.
While cash advances don’t directly affect your credit score, they’re another factor in credit utilization that merits consideration. If you really do need cash for some reason, get it from a bank instead.
With an improved credit score, you’ll be able to qualify for better rates on loans, get an increased credit limit or a better card, and even have a faster application process for necessities such as vehicles and housing. Just watch out for pesky fees! Don’t allow them to derail you from reaching your financial goals.