You've gotten a credit card! Your bank has promised great rewards - maybe it's 1% back, or 2x points on restuarants, or something else. You use the card for a month and check your rewards balance. It's like $2 and maybe there's a minimum reward withdrawal (Wells Fargo's is $25). Does this sound familiar?
The reality of it is, if you're not spending thousands of dollars a month, your credit card rewards probably aren't going to be worth it. Moreover, when you add up all the fees and interest payments you're making - you might be losing money. Banks design their credit card rewards programs to be deceptive like this.
It's very important to fully understand the costs of your credit card. You need to take multiple things into consideration:
- The annual fee
- Balance transfer fee
- Over-limit fee
- Cash advance fee
- Expedited payment fee
- Returned payment fee
- Late fees
- Interest payments
- FX fees
That seems like a lot! Don't worry - we'll go through them here. These fees depend on your card, it's a good idea to understand how much they are.
The annual fee is clear - you should be able to find that easily in your cardholder agreement. This doesn't change based off your behavior.
The balance transfer fee may be charged when you make payments on your card. You should be able to see this whenever you make a payment.
The over limit fee applies when you make a transaction that puts your total spend for that month over your credit limit.
The cash advance fee is charged when you withdraw cash from an ATM using your credit card. These tend to be very high (usually around $10)
The expedited payment fee gets charged when you need to make a payment fast. Perhaps you're going to be late paying your card, and you don't want your credit score to decrease. You're forced to pay this fee!
The returned payment fee is debited when you try to make a payment, but it doesn't go through. This is most common when you don't have enough money in your account to cover the payment. This fee is particularly harsh because it applies when you don't even have enough money to cover your current debt.
The late fees are common. You're charged late fees when you pay your balance after the grace period is up (details on how much time you have to pay are in your cardholder agreement, but it's usually one month)
Interest is what the bank charges you for the time you haven't paid your balance. A certain percentage of your balance that gets added every month, until you pay it off. Credit cards have notoriously high interest rates (around 20% per year).
FX fees apply when you make a transaction in another currency. If you're visiting another country and use your credit card, the bank will charge you a few percent of your transaction to convert your currency to the local currency.
Obviously, these fees are a headache. But building good credit is extremely important. You might think you have no other options and you'll just take the small rewards and high fees. But there is another way!
With Lucky Card, we've gotten rid of almost all of those fees. Since you pay your credit card bill before using the card, there's no interest, late fees, or expedited payment fees. You can't go over your limit either (so there's no over limit fee). We got rid of balance transfer fees as well.
We've also added a prize-linked rewards program to Lucky Card. Every time you use it, you can win up to one thousand dollars. Finally: a card with fun rewards that builds credit and doesn't cost you a fortune!