Credit card charges explained

When used sensibly, credit cards are very useful and can actually improve your credit score. But it’s important to be aware of any fees and charges, as well as making your monthly repayments on time.

Written by

The Editorial Team

Experts in personal finance, insurance and utilities

Posted

8 DECEMBER 2020

5 min read

Common credit card charges

When it comes to credit cards, it’s important to understand how they work and what happens if you fail to manage and make your monthly repayments. Otherwise, you could end up with added fees and charges to pay.

Here’s a look at the most common credit card charges and what you can do to avoid them.

Interest

The average credit card interest rate is roughly 20%. Interest will be charged on any remaining amount you owe if you don’t pay your credit card balance in full each month. To avoid paying interest, make sure you pay off your balance in full each month and on time.

Or, you might want to consider a 0% credit card. This allows you to spread out your repayments over the length of the interest-free period. As long as you make the minimum monthly repayments on time, you won’t pay interest. Just be aware that once the 0% period ends, you’ll be charged interest on anything you still owe on the card.

Use our credit card repayment calculator to see how much you could save on interest.

Going over your credit limit 

When you take out a credit card, you’ll be given a credit limit. If you go over this, you’ll be charged a fee.

If you usually stay within the limit and only go over by a small amount, it’s worth contacting your provider to ask if they’ll waive the fee.

Late payment fees

Make sure you pay what you owe on your credit card, or at least pay off the minimum amount, by the due date. It’s a good idea to set up a direct debit so you never miss a payment. If you don’t pay anything, or pay less than the minimum amount, you’ll be hit with a late payment fee – usually around £12.

A late payment, or failing to pay a monthly instalment, will go on your credit report and could damage your credit score. This could affect your ability to get any credit, loans or even a mortgage in the future. If you miss a payment during an interest-free period, you might even lose your interest-free period altogether.

Cash withdrawal fees

You’ll be charged for taking out cash on your credit card. This is usually around 3% of the amount withdrawn. You’ll also be charged daily interest from the moment you take out the cash until you pay off the full balance. To avoid running up nasty fees, only use a debit card to get money out of an ATM.

Using your card abroad  

Most providers charge a commission fee if you use your credit card abroad. If you withdraw cash on your credit card abroad, you could be charged a foreign transaction fee as well as a cash advance fee.

Before going abroad it could be a good idea to find a travel credit card. These tend to have lower charges and are specifically designed to be used overseas. Just remember, you could still be charged a foreign usage fee and added interest on purchases (even if you pay it off in full within the month).

If you’re given a choice of paying in pounds sterling or the local currency while overseas, always choose to pay in the local currency. Opting for pounds sterling might sound like the right thing to do, but it means the exchange rate used won’t be as good as the one your credit card company will give you.

Balance transfer fees

A balance transfer fee is a one-off fee and is usually a percentage of the amount to be transferred. The fee will be stated in the T&Cs before you apply. You can move your existing credit card balance to a balance transfer credit card if you’ve found one offering better interest rates.

Just be aware that even if you choose a balance transfer card offering 0% interest for a set period, you’ll still need to pay the transfer fee – typically around 3% of the amount you’re transferring. So, for example, if you’re transferring £3,000 and the balance transfer fee is 3%, you’ll need to pay £90.

How to avoid credit card charges

Always try to pay off your balance in full
At the very least, pay the monthly minimum
Always pay on time – you’ll find the due date on your credit card statement
Don’t go over your credit limit
Don’t make cash withdrawals on your credit card
If you’re on an interest-free deal, make sure you pay off the balance in full before the 0% period ends
Set up direct debit to avoid late or forgotten payments

Did you know?

Most credit card providers allow you to set up free text alerts via an app you can download to your smartphone. These include push notifications to alert you when payments are due and if you’re reaching your credit limit, and even spending notifications to alert you when charges are being added to your account. They can be a great way to keep track of your spending and manage your payments more effectively.

Can I dispute these charges?

You can dispute credit card charges, but you’ll need some good reasons for doing so. Your provider may waive the fee if you make it clear it was a genuine mistake and it’s something that you haven’t done before, but they don’t have to.

Are you struggling to keep up with your repayments?

If you’re struggling with debt and finding it hard to meet your monthly repayments, then you can talk to your credit card provider about this – they may offer you an alternative payment arrangement that works for both of you. If they’re not willing to help and you simply can’t keep up with the payments, contact Citizens Advice or the Government’s National Debt Advice.

Read our helpful guide on dealing with credit card debt.

Choosing a credit card

Don’t be put off by fees and charges as your credit card can be very useful, if you use it wisely and stay disciplined. The first step is to find a card that works for you by doing your research and comparing what’s on offer. Use our credit card eligibility checker to see which cards you’re most likely to be accepted for before you apply. It’s a soft search and won’t affect your credit score.

Compare the Market Limited acts as a credit broker, not a lender. To apply for a credit card, you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

Looking for a credit card?

Compare credit cards quickly and easily. Use our eligibility checker to find a credit card deal that suits you – and find out if you’re likely to be approved without it affecting your credit score.

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