By David Pilley on July 27, 2010
.jpg.aspx?width=75&height=75) When you are using a credit card, there may be a multitude of extra fees. You’re probably well aware of the interest rate, the fee charged to use the credit on the credit card; and you may or may not have an annual fee, the fee charged to possess the credit card. Another type of fee you need to be aware of is the transaction fee.
A transaction fee is a charge assessed to a specific purchase. You do not have to pay it for every purchase, and they are fairly small amounts, typically between one and three percent of the purchase. There are three main types of purchases in which a transaction fee may be applied: cash advance, business transactions, and foreign transactions.
A cash advance is a transaction that allows you, the cardholder, to withdraw physical cash from your credit card account. Why would you ever need to use a cash advance? Well, some places (restaurants, small retail stores, etc.) might take only cash. If you don’t have any on you, you may be able to use your credit card at an ATM or a bank to access cash. It will appear as a typical purchase on your credit card bill, but if you need cash from your credit card, there will be a transaction fee applied.
Not everyone will come across business transactions, since not everyone owns a business. If you own a mom-and-pop shop, maybe like a family restaurant or candy shop, and you accept payments by debit or credit card, you will have transaction fees applied. If you own a business, you need to have a merchant account in order to do business with credit and debit cards. Whenever someone makes a purchase with his/her credit or debit card, the information is sent to the merchant bank, and an amount is deducted from the purchase as a transaction fee (also known as an interchange fee, in this case). These fees may be in the range of one to five percent of each purchase, and if your credit score is poor, the fee may be higher. Again, not everyone owns a business, so this type does not apply to everyone.
The third type of transaction fee applies to foreign transactions. If a foreign bank is involved with one of your purchases (such as buying a product being shipped from a different country or making a purchase while in a different country), your lender will charge a transaction fee. The amount here is between one and three percent of the purchase, but you need to check with the issuer of your credit card, as well as your bank. If you have a Visa or MasterCard, the amount is one percent, but your bank will add an additional one to two percent. If you have American Express, the fee will be two percent. Capital One and Discover cards do not have a foreign transaction fee, but they are not accepted in many countries. It all depends on what type of credit card you have and how good your credit score is, but these are the three situations in which a transaction fee will be applied.
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