Understanding the 10 most common fees associated with Carrying a Credit card

A credit card can be a great tool to help stabilize any cash flow turbulence you may have in your business or personal budget. But with credit or the advent of being a credit card owner comes a variety of fees and charges that can be tremendously confusing. Joining fee, Annual fee, Over the limit fee ... what do all these terms mean? How do they differ from one another?

In accordance with our guides series, we're demystifying some of the common terms associated with credit cards.

1. Joining Fee

This is a One-time sum you pay to obtain a credit card. This is similar to the initial fee one typically pays to join a social club or gym. Most banks in Kenya charge a joining fee to carry one of their credit cards. Standard Charted, for example charges a joining fee of KES 3000 for their Gold Card.

2. Annual Fee

An annual (yearly) fee charged by a credit card company each year for use of a credit card. This is a separate fee from interest rate on purchases. While annual fees were once common, they largely disappeared in the '80s and '90s, remaining only on a few classes of cards, such as secured cards or those that offer airline frequent flier miles as a reward.

3. Annual percentage rate (APR)

The annual percentage rate (APR) is the interest rate charged on credit card balances expressed in a standardized, annualized way. This rate is applied each month that an outstanding balance is present.

4. Over-limit fee

An over-limit fee is a fee charged when your balance goes over your credit limit (also known as over the limit fee). When cardholders attempt to make purchases that will put them over limit, card issuers used to routinely decline the transactions. In recent years, many card issuers changed their policies and automatically enrolled consumers in programs that allowed the transaction, but then added hefty fees.

5. Late payment fee

A late payment fee (a late charge) is charged to a borrower who misses paying at least their minimum payment by the payment deadline. In order to avoid late fees, ensure that you pay at least the minimum amount by the due date. Late payments may affect your credit history negatively, even if your entire outstanding balance is later paid in full. Most Banks charge an average KES 1500 for late payments.

6. Cash advance fee

A cash advance fee is a charge that a credit card issuer charges a customer for accessing the cash credit line on his or her account, either through an ATM, convenience check or at a bank's teller window. The fee is a percentage of the amount withdrawn, usually with a minimum amount charged for smaller transactions. Finance charges typically accrue from the date of the advance, without the grace period normally present with purchases.

7. Supplementary card fee

Additional or supplementary card fees are charged for each additional card linked to your credit card account. These are charged to your account every six months, or for MasterCard Low Interest, every three months.

8. Card replacement fee

Other than a replacement card due to stolen card or expired card, most banks will charge you a one time fee if your card has to be replaced. Replacement fees range anywhere from KES 1000 to KES 1500. Equity Bank charges KES 1500 to replace their Visa Gold and KES 1000 for the Classic.

9. Finance Charge

Finance charges are the monthly interest charge added to your account for the convenience of carrying a credit card balance beyond the grace period.

You'll have a finance charge added to your balance any month you don't pay your balance in full unless you're under a 0% interest rate promotion.

The amount of the cash advance depends on your credit card APR, the balance, and your credit card's method of calculating finance charge.

You can avoid paying a finance charge by paying your balance in full each month.

10. Foreign Transaction Fee

Foreign transactions fees are charged when you make a purchase in a foreign currency. You can sometimes be charged the fee regardless of your physical location if the transaction is for a currency other than U.S. dollars. Some credit cards don't charge a foreign transaction fee, but those that do, typically charge 3% of the transaction amount. If you're traveling out of the country and want to avoid paying foreign transaction fees, look for a credit card that doesn't charge the fee.