There was a time when owning a credit card came with a few rules, and little else. We were burdened with very little in order to keep up with our financial responsibilities – our credit limits, how much our credit card would cost us in terms of interest rates, our due dates and how much we owed. Now, though, most consumers do a lot of comparison shopping – they’re looking for rewards programs, cash back opportunities, balance transfer options – the list is endless. But how much do we know about the actual terminology? Buckle up – we’re going to explore some of those little known terms and what they mean to those whose wallets are home to them.
Foreign Transaction Fees
Sometimes referred to as international transaction fees, this is the cost tacked on to your credit card anytime you make international purchases or pay for services from another country. Typically, those fees are 2%, though sometimes, your credit card offer comes with a 3% transaction fee. A $500 charge when you’re on vacation in London will cost an additional $15. Keep in mind – while this charge applies if you’re actually traveling outside the U.S., it also applies to any online charges you make to overseas companies or merchants.
At the time of this writing, the following card networks have these foreign fees:
- American Express – Between 2 and 3%
- Bank of America – Between 1 and 3%
- Capital One – No foreign transaction fees at this time
- Citi – 3% – though it does have some credit card offers with no foreign transaction fees
- Discover – No foreign transaction fees at this time
- USAA – 1% – though members of the military can be reimbursed for those fees
Wells Fargo – Most have 3%
Keep in mind, these are all subject to change, so it’s important to review your terms and conditions. Your credit card’s website will have the latest information. And, of course, if you’re uncertain about your foreign transaction fees, you can always contact your card company for the latest information.
These are the fees associated with balance transfer credit cards. While we’re always drawn to an intro 0% APR for our balance transfers, the fact is, it’s not free. Card members typically pay 3% of whatever the total is that they’re transferring. For instance, if you’re transferring a balance of $1,000 from one credit card to another, and the fee is 3%, it’s going to cost you $30 to move the balance over to the new credit card. That said, only the card company that the balance is being transferred to can tack this charge on your account.
This is the ratio your credit card company incorporates to apply to your debt. There are new laws, specifically the 2009 CARD Act, that essentially changed the rules on how card companies can calculate these fees. There were many credit card companies that were applying payments to the part of your balance with the lowest APR. Because the way we use our credit cards often have different APRs based on those uses, it can sound confusing. Remember, though, cash advances have higher APRs as do balance transfers.
If you’re carrying a $500 balance with $200 for purchases, $200 for cash advances at $100 on your balance transfer, traditionally, the card would take your payment and apply it to the balance that had the lower APR. That way, it could allow the higher APR balance to continue accumulating. If you’re under an intro APR for balance transfers, odds are, your payments would be applied to that first since it’s not making money for the credit card company. That means the $200 you withdrew from an ATM with a higher APR will still be there next month – along with the higher interest that’s accumulating.
The new laws now require credit card companies to apply all payments to the higher APR balances first. There’s one catch, though. This law only requires that payments you make above the minimum amount due be applied to the highest APR balance. If your minimum payment is $20, then that amount is applied to the lowest APR balance. Any amount above that would go towards your balance with the highest APR balance.
Keep in mind, though, these rules do not apply to business credit cards.
A penalty or default APR is what you face if your credit card is in default or if you don’t remain compliant with the other terms and conditions associated with your credit card. These guidelines too changed when the new laws went into effect. Your credit card company can now only apply a penalty interest rate to your current balance if you are more than sixty days late in making a minimum payment. If the penalty rate kicks in for any other reason, then it can only be applied to future transactions. Further, your credit card company can’t assess that increase during the first twelve months of your account. Keep in mind, though, the credit card company can basically raise your rate for any other reason, but before it does, it must notify you and then it can only happen forty five days later. Finally, if your card company does apply a penalty interest rate increase, it must also notify you about the way you can get back to your non penalty rate – which basically is six months of on time payments. It can’t hold you to that increase after that.
The rules are different for business credit cards, too. The penalty or default APR for credit cards for small businesses can kick in if you miss a payment, going over your credit limit or if your payment is returned for not having the funds in the bank to cover the check. Your card company can apply a penalty rate of more than 20 percent if it chooses and it will apply to your entire balance, with no differentiations such as those with consumer credit cards. Also, your cash advance interest rates can increase, as well.
This is especially troublesome since many small businesses typically carry larger balances. It can mean the difference of thousands of dollars spent just on making your payments each year. Remember too that small business cards have no protection under the new CARD law. It’s recommended that business owners avoid carrying big balances and in fact some financial experts suggest a traditional consumer credit card for small business owners. The business credit card could be used to make smaller purchases that can be paid off each month. Also, both consumers and small business owners should carefully review the guidelines so that they’re aware of what kind of APR they’re going to be hit with if they miss a payment or otherwise fall out of compliance with the agreement. Finally, if consumer is concerned about the penalty APR, a quick phone call to their credit card company can ensure they have the latest and most accurate information.
These are just a few of the most often asked about credit card terms. The best advice any consumer can get is to assume nothing. If you’re unsure about any aspect of your credit card, whether it’s a consumer or business card, your best bet is to go straight to the source and ask your credit card company.
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