July 1, 2022
Using a credit card is a convenient way of borrowing money. Unlike a debit card that uses money in your checking account, a credit card uses money from your card issuer to cover a transaction. You can enjoy instant gratification and pay later.
So, are credit cards free to use?
Not quite. Like other forms of borrowing, credit cards come with fees and interest charges.
Does It Cost Money to Get a Credit Card?
Applying for a credit card doesn’t cost money. You can apply for one through your bank or credit union’s website. You can also visit a credit card company’s website directly. You’ll undergo an approval process and, if approved, you’ll receive your card by mail within a week or two.
While applying for a credit card is free, having one can be expensive. Most credit card companies charge fees to use their card. The number of fees and amount per fee can vary a lot depending on:
- Your card issuer
- The type of credit card
- Your credit score
- The way you use your credit card
Shop around before signing up for a credit card — the difference in cost between cards can be huge when you consider fees and interest rates. Unless you compare before you commit, you could end up spending a lot more for the same features.
What Does "Annual Fee" Mean?
An annual fee is a charge that gives you access to a credit card. It’s usually charged once each year and can range from $30 to as high as $500.
Why Do Credit Cards Have Annual Fees?
Credit card issuers charge annual fees to make money and to protect themselves in case their customers can’t pay their credit card bills. That’s why people with little or poor credit often end up paying higher annual fees. But people with great credit can also pay high fees for cards with unusually good benefits (often known as premium credit cards).
Cards without annual fees do exist, but you’ll need to specifically search for them since they’re often less publicized by credit card companies. You may also need to raise your credit score to qualify for one. There are also other steps you can take to increase your chances of qualifying for a credit card.
What Fees Do Credit Cards Include?
Besides an annual fee, most credit cards charge a range of fees based on how you use them and different services they provide. For instance, if you travel to another country and use your credit card then you might be charged a foreign transaction fee.
The most common cost associated with using a credit is interest. Each month that you use your credit card, you rack up charges. The total of those charges is called a balance. You can choose to pay off your balance at the end of each month, or you can pay part of the balance and carry the rest over to the following month (known as “rolling a balance over”).
You’ll be charged interest for every month you carry a balance from the
previous month. This interest will be added to your balance, and over
time it can grow substantially. That’s why your card’s interest rate
(known as an APR) is important for determining the cost of a credit
There are other common fees credit cards charge. Read a card’s terms and conditions so you know what fees the card charges, when they apply, and how you can avoid them.
How to Get a Credit Card for “Free”
Technically, credit cards aren’t free, but if you work the system right, you can avoid fees and interest for a virtually “free” credit card experience. Credit cards with no annual fee are common. You can start searching for one at your bank or credit union. You can also check major credit card servicers’ websites.
Some credit cards offer to waive your annual fee the first year, so when you’re comparing different cards make sure you understand whether the card really omits an annual fee or if the fee is just temporarily waived.
Even a card with no annual fee will still cost you if you’re paying interest. To avoid interest charges, you’ll have to watch your balance carefully and pay it often. Be careful not to spend more than you can pay off at the end of each month.
Another way to keep your credit card “free” is to read your card’s terms and conditions in the Schumer box. Most cards have a host of fees for different features. If you know what fees your card charges and when they apply, you can make smart choices that help you avoid paying credit card fees. For example, you can choose not to use the cash advance feature on your credit card if you’re aware that feature comes with fees.
Credit cards have many advantages. They offer convenience, help you break up big expenses, and even help build your credit. Now you know how to enjoy those advantages without the all the extra costs.