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Understanding Credit Card Fees
Penalty costs
Over-the-limit penalty
Your credit limit is the maximum amount that you are allowed to spend on your credit card. Your credit card issuer decides whether to allow any transactions to go through if you go over your credit limit. If you do go over your credit limit, you may have to pay a penalty, which can vary from one card issuer to another.
The credit card issuer will not inform you if you are about to go over your credit limit when you make a transaction. It is your responsibility to pay attention to your balance and make sure you don't go over your credit limit.
If you are frequently close to your credit card limit, you can ask your credit card issuer to stop any transactions that exceed your credit limit. Some credit card issuers may not offer this service. Even if they do, some types of transactions over your limit may still be processed. This is because some sales, usually of low-value items, go through without the issuer being notified at the moment of sale.
Merchants sometimes put a temporary hold on funds on your credit card to make sure you are able to pay for goods or services you get before you pay for them. By law, federally regulated financial institutions cannot charge over-the-limit fees due to these temporary holds.
For example, Steve has $90 left in his credit limit, and when he uses his card to buy gas at the pump, the gas retailer places a $100 temporary hold on his card until he finishes his fill-up and pays for it. Steve's fill-up only costs $20. The credit card issuer cannot charge an over-the-limit fee in this case.
This exception does not apply if Steve goes over his credit limit without the temporary hold. For example, if Steve had $10 left within his credit limit, and used his credit card to buy $20 of gas his purchase would take him over his credit limit by $10. Therefore, he could be charged an over-the-limit fee. The $100 temporary hold placed on his card would make no difference.
Fees for dishonoured payments
A credit card issuer may charge you a fee to handle a payment that is not honoured, or "bounces." This fee applies if you:
- make your payment by cheque and the cheque is returned because of nonsufficient funds (NSF),
- make your regular payment by a pre-authorized debit that is rejected because of NSF, or
- use a convenience cheque to get a cash advance on your credit card, and your credit card issuer returns the cheque because you are over your limit.
In addition, the financial institution that holds the account from which you tried to make the payment may charge you a separate NSF fee.
Inactive account fee
If there has not been any activity on your credit card for a period of time — usually at least a year — some credit card issuers will charge you a fee for maintaining an inactive account, or may even close your account. If you no longer need your credit card, make sure you contact your card issuer to cancel it and keep a record of the cancellation.
Simply cutting up your card does not automatically cancel it, even if your credit card has expired. You may still have to pay an inactivity fee, since you did not cancel the card.
Interest rate increase following missed payments
If you miss making minimum monthly credit card payments by the due date, your credit card issuer may increase the interest rate on your credit card. It depends on your issuer, but your regular interest rate will usually go up between 2% and 6%. The increase can be temporary or permanent, depending on the issuer.
By law, federally regulated financial institutions must notify you in advance of an interest rate increase and in some cases provide a reason for the rate increase.
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