Late fees and over-the-limit fees are punitive fees that affect "bad" credit card holders who pay their bills late or exceed their credit limit. Increasingly, however, credit card issuers are also penalizing good behavior. For example, some are charging punitive fees to infrequent credit card users or cardholders who pay bills in full each month to avoid finance charges.
Policies vary among creditors, so it is important to read "the fine print." Some credit issuers charge a fee when cardholders don't use their credit card at all within a specified period. Others charge if the card is not used a certain number of times within a specified period or if charges total less than a certain dollar amount. A few credit cards also charge a fee to cardholders that pay less than a certain amount (e.g., $25) of interest annually.
Some credit card issuers entice consumers to charge more with offers of gifts, charitable donations, and trial offers for products and services. Credit card rebates, gifts, and discounts need to be evaluated carefully. Sometimes, consumers have to pay a fee to join an incentive program. Unless cardholders make large purchases and pay their balances promptly in full, the costs may exceed the benefits.
Affinity cards that make donations to charity, based upon the amount charged, must also be scrutinized carefully. Often, the amount of the donation is small, such as a half of one percent (50 cents for every $100 charged). In addition, unlike a cash donation, indirect donations via a credit card are not tax-deductible.
Another type of credit card that needs to be scrutinized carefully is the so-called "enhanced" credit card with perks or "kickbacks" such as cash back rebates, product discounts and frequent flyer miles. Often, these credit cards charge high APRs (interest rates) and/or fees. Unless a cardholder charges a lot and pays the balance in full, they probably won't benefit from this type of credit card. The costs will simply exceed the benefits for most "revolvers" (cardholders who carry a balance).
Some credit cards offer other enhancements. These include: purchase protection plans, collision damage waivers for car rentals, travel discounts, and extended warranties. Benefits such as these should not be the primary reason why a credit card is selected. Interest rates and fees are the most important factors.
Credit card benefit policies are also subject to change. While their benefits are often marketed with a great deal of fanfare to attract customers, they are often dropped very quietly afterwards. It is important to pay attention to periodic mailings from credit card issuers.
When evaluating a credit card offer, it is important to read "the fine print." This includes the mandatory disclosure chart (also called a Schumer Box) and the footnotes that accompany it. This chart can be found on the back page of credit card offers and is required by federal law.
Key features to look for in the Schumer Box are: the post-introductory period annual percentage rates (i.e., the actual APR after an introductory offer expires); the APR formula if the interest rate is variable; the length of the grace period, if any; the amount of the annual fee, if any; transaction fees; late fees and over-the-limit fees; and the method of computing the balance for billing (e.g., average daily balance method).