It’s so easy to whip out your credit card to pay for that leather jacket you’ve been coveting, or to get a small cash advance when your wallet’s bare, but there are a lot of things you may not know about what using that piece of plastic entails. From fees for exceeding your monthly limit to extra hidden costs when you use your card internationally, we uncover the top five items you may be surprised to learn about your credit cards.
1. You get charged a fee if you go over your credit card limit.
If you think of the limit on your credit card as the ceiling to what you can charge on it, that’s great (hopefully you haven’t charged up that much on it to begin with). But the truth is you can charge more than your limit -- but at a significant cost. You’ll get charged on over-limit fee, which for some banks is $25 (although there are cards that don’t charge this fee). Going over your max will also hurt your credit score; it’s typically seen as a sign that you are struggling paying your debts.
2. When you use your credit card in other countries, there is a foreign-exchange fee.
When you’re traveling, it’s often easier to just charge all of your purchases rather than go get the country’s currency. But did you know that you’re paying a fee whenever you make a buy on your card internationally? It’s typically 2.5 per cent, and you may not have noticed the fee as it’s hidden on your statement (it’s rolled into the cost of your purchase listed on your statement when stated in Canadian dollars).
3. You’re charged interest as soon as you make a cash advance or balance transfer.
When you make a cash advance or transfer a balance from another card, you are charged interest from the day you make either of those two transactions. And don’t get caught by surprise by the interest charged from the day of use when writing a convenience cheque or making transactions like wire transfer -- that’s in the same category as a cash advance and the same rules apply. Also, read the fine print as the interest on your cash advances may be higher than the interest rate you’re charged for purchases.
4. Paying only the minimum monthly fee is extremely expensive over time
If you fail to pay your entire credit card balance in the first month (and the grand majority of credit card users fall in that category), you will be charged a minimum monthly fee. The fee is usually a flat dollar amount of $10, or a percentage of your total balance -- whatever fee is higher. Since the average credit card interest rate is 20% in Canada, you will end up paying several times more than your original purchase in interest alone if you only pay the monthly minimum. Once you couple that with expensive penalty fees for cash withdrawals and late payments, your credit card debt can suddenly become a very tricky balancing act.