1. Annual Fees.
Some banks charge a yearly fee for the opportunity to use their credit cards. This fee varies by bank, your credit score, and the credit limit on the card. My American Express charges me $89 a year. I usually don't keep cards that charge an annual fee. However, this card gives me benefits that are worth more than $89 a year, so I keep it. Weigh the benefits, and if the benefits don't outweigh the cost then I'd recommend avoiding these types of cards. To avoid annual fees, you can call the credit card issuer every year and tell them you're going to cancel your account. To keep your business, they will usually waive the annual fee if you stay on for another year. Another strategy to avoid annual fees is to ask for an upgrade to a credit card that doesn’t have an annual fee. This way you don’t have to close your account and damage your credit.
2. The sale of enhancements.
Enhancements are insurance products like disability or involuntary unemployment insurance that creditors sell you to help you cover your payments during unforeseen circumstances. I don’t recommend these enhancements as they will only cover your interest payments for a set amount of time. So if you owe $20,000 on your credit card, they would pay for the interest your account is building for up to one year. If presented with the insurance information, should you lose your job or become disabled after the set time period, the creditor may still assist you.
3. Foreign transaction fees.
Foreign transaction fees accumulate every time you use your credit card in a foreign country. Some credit cards will charge you 3% on each transaction. These charges can add up very quickly, so if your planning to go on vacation try to add at least one credit card to your wallet that does not charge foreign transaction fees.
4. Late payments.
Late payments generate revenue in the form of penalty fees up to $38 per late payment. Of course, the plan is never to be late, but sometimes a check bounces, someone doesn't pay you on time, or an unexpected expense happens. If this occurs, call your credit card company, and often, they will waive the late fee as a courtesy.
5. Sale of cardholders information.
Credit card companies make money from commissions by selling cardholder information to other companies that can sell the same cardholders more services and products. This sale of your personal information is what generates all the letters received in the mail for pre-approved credit cards, loans, and other financial products.
6. Interchange fees.
Interchange fees are the fees charged to vendors/retailers every time you purchase something with your credit card. It is the number one revenue source for credit card providers. Retailers are charged 1-4% on every transaction completed for the convenience of the credit card company lending you the money to make the purchase. So even when you pay your credit card bill off in full every month, they still make a profit. Some retailers try to limit their exposure to losing 1-4% of every sale, by charging their customers the fee or only accepting one type of credit card.
7. Interest.
Credit card companies make money from the interest they charge on the debt you have on your credit cards. Credit cards are called revolving credit lines because they allow you to pay what you owe in increments. If you choose to make a partial payment, your balance will be carried forward to the next month's bill, and the interest compounds. Forty-three percent of cardholders in the USA carry balances each month, and the average debt is $6,354, which is $1.02 trillion total revolving debt in the USA.
8. Cash advance fees.
Cash advance fees range from 3-5% for pulling cash out of your credit line. The fee is to make up for the lost interchange fees which are charged by banks when you use your card for purchases. Additionally, cash advances begin accumulating interest immediately instead of the usual 30 day grace period.
9. Over the limit fees.
These are charged when you go over your card's spending limit. The fee is charged for the temporary boost in your credit line. For example, you’ve gone out shopping and spent $900 of your $1000 credit line. Later that night an auto payment for $300 for your gas bill comes through, and now you’re $200 over your credit limit. The bank will extend you the extra credit, but will sometimes charge you for letting you borrow the extra money.
10. Marketing agreements.
Much like a billboard, credit card companies offer companies to place their logo on their cards for a fee or percentage of sales from their customers. An example would be a World Wildlife Fund Visa credit card that has the company’s panda logo on the front of the card.