The Cost of Credit Card Use

Most of us don’t know the true cost of credit, we simply pay attention to what we’re paying in fees and finance charges.

But the cost of goods and services increases as a result of credit card use, as merchants need to pay fees to banks, credit card issuers, and other companies for the infrastructure, equipment, and convenience.

These merchant and interchange fees vary based on the type of transaction, merchant, and card issuer involved.

Visa charges an average of about 1.80% per transaction, while American Express charges around 2.50%, though smaller retailers typically pay between 3.25% – 3.75%.

This is why you’ll often find that not all small merchants accept American Express, as they don’t want to pay the extra fees (Amex also tends to side with the consumer, another drawback for merchants).

If the merchant has a special deal in place with a card issuer, perhaps based on a volume or exclusivity agreement, they’ll be able to secure lower pricing.

Take a look at these figures below, provided by to get a better understanding of what credit really costs:

credit costs

credit cost

But even if you elect to pay with cash, more often than not the price already reflects the option to pay with plastic, unless you work out a deal specifically with the merchant.

The use of credit is already priced in, so it’s wise to get your hands on a cash back rewards credit card, like the American Express Blue Cash Everyday card, which offers cash rebates of up to 1.25% – 5% on all purchases.

Tip: Watch out for merchants who try to pass the “transaction fee” onto you directly.

Credit Card Companies Waive Fees for Haiti Relief

All of the major credit card companies have announced they will not charge the usual transaction fees for certain donations made toward relief efforts in Haiti.

Visa, MasterCard, American Express, and Discover have all separately announced the waiving of interchange fees, typically between one to three percent of a given transaction.

So instead of charities like the American Red Cross and Doctors Without Borders losing out on a piece of each donation, they’ll get to keep that money and ideally use more of it to help those in need.

Visa said it wouldn’t apply interchange fees through February for select charities yet to be named; MasterCard is waiving interchange fees on relief donations made to American Red Cross, AmeriCares, Unicef, Save the Children and CARE U.S.A.

American Express will rebate transaction fees for charitable donations made on its card for nonprofit organizations listed on the Agency for International Development’s website.

Discover is also waiving fees, but didn’t make clear which organizations would be included.

It’s believed credit card companies and banks make around $250 million a year on fees tied to charitable donations alone; they make billions annually for all transactions.

They’ve only waived their fees once in the past, after the 2004 Indian Ocean tsunami.

(photo: Colin Crowley)

Income to Be Used for Credit Card Approvals

Your income may become a more important factor in determining whether you’ll be approved for a credit card, according to a post in the WSJ.

The paper said beginning in February, credit card companies will be required (Credit Card Bill of Rights) to consider an applicant’s income or assets/current debt before extending credit to ensure consumers have the ability to repay.

In preparing for the change, the credit bureaus have already gotten in on the income estimation business, with Experian reportedly nailing down income to the nearest thousand.

They came up with their estimates by matching credit reports with wages, interest, and investment income, along with total credit lines and related payments.

These income estimates will help credit card issuers approve or decline applicants, and may also be utilized to increase or decrease an existing credit line.

In the past, credit card issuers simply asked consumers to enter their gross annual income in a box on the application form, but soon you could be required to provide pay stubs, tax returns, or be asked to fill out a form 4506, which allows the IRS to release your tax filings to lenders (so no fudging the numbers).

What the changes really communicate is that credit scoring has proven to be unreliable, at least as a standalone determinant of capacity to repay debts.

Of course, the income estimates are just ballpark figures when it comes down it, which is why the credit bureaus’ contracts prohibit card issuers from turning down customers based solely on the information.

Read more: Why credit card regulations are worthless.

American Express Cards with No Annual Fee

I like American Express a lot, I don’t hide that fact. Their customer service is stellar, it’s easy to dispute fraudulent/bogus charges, and the rewards tend to be the best in the industry.

Their credit cards also look really cool, and who doesn’t like to look cool?

At the same time, a number of American Express credit cards come with some hefty annual fees, which I’m not a fan of. In fact, some of the annual fees are several hundred dollars a year. Take a took at the Amex Platinum Card if you don’t believe me. Eek. For the record, the Amex Green and Gold credit cards have annual fees as well.

I’ve never embraced the idea of paying a fee to use a credit card, it just doesn’t sit well with me. After all, there are plenty of great options out there that are fee-free, so why pay?

For most people, the annual fee will never be justified by whatever benefits are offered.

Fortunately, even almighty American Express has a number of credit cards with no annual fee, good ones at that. And I carry one of them as my go-to credit card.

That said, let’s take a look at all the “American Express cards with no annual fee:”

Blue from American Express

This revolving credit card from American Express has no annual fee and a 10,000-point opening bonus, which is attractive, though it only earns one point for each dollar spent.

Blue Cash Everyday Card (my personal favorite)

This Amex card comes with introductory 0% APR for 12 months on purchases, “no annual fee,” a great cash-back rewards program, and instant approval in under 60 seconds.

You get 3% cash back at stand-alone grocery stores, 2% cash back at stand-alone gas stations, 2% at major department stores, and 1% cash back everywhere else, with NO annual fee. Pretty good rewards considering the credit card doesn’t come with an annual fee, eh?

For these reasons, it’s my credit card of choice.  By the way, American Express also offers a paid version of the card that offers slightly higher cash back percentages.  Do the math to see if it will net you more money, with the annual fee factored in.

Tip: Apply for the old version of the card and earn 5% cash back on gas, groceries, and at drugstores after spending $6,500 each year.

Amex EveryDay Card

This is the newest American Express card to join the lineup.  It’s very similar to Blue Cash, but instead of cash rewards, cardholders receive membership points, which could extend further when used for travel.

But I still favor Blue Cash because the cash back tiers are significantly higher.

Blue Sky from American Express

If you want a travel rewards credit with no annual fee from American Express, look no further.

The Blue Sky credit card comes with 0% introductory APR for 12 months on purchases, a point-based rewards program, instant approval in less than 60 seconds, and no annual fee!

And there are no blackout dates, no travel restrictions, and the points can be used on any airline, hotel, car rental, etc.  In fact, you can book travel on any website you want, including popular low-cost comparison sites such as Kayak.

Bluebird from American Express

This new prepaid credit card has no annual fee, which rivals most of the prepaid credit cards out there that are riddled with all sorts of fees.

That’s actually their selling point with this new card, making it a contender in the highly competitive space.

Clear from American Express

This credit card was intended to be an easy-to-use, no-fee-of-any-kind credit card – it features no annual fee, no balance transfer fee, and no late credit card payment fee.

Hilton HHonors Card from American Express

This hotel and travel rewards card from American Express features no annual fee and the ability to earn 40,000 HHonors bonus points upon sign-up. Not a bad deal for the frequent traveler.

Serve from American Express

American Express has another prepaid credit card with no annual fee, though this one is aimed at the underbanked youth.

It’s got all types of neat features, including the ability to send payments via Facebook.

TrueEarnings Card from Costco and American Express

If you’re already a Costco member, you can get a Costco-branded American Express card at no additional cost. Essentially, you get two memberships for the price of one.

And you get 1% cash back on Costco purchases!

Fidelity Investment Rewards American Express Card

Credit cards with no annual fee don’t have to be lackluster. Take the final credit card on our list. You get 2% cash back on ALL purchases and that money can be invested in a Fidelity account for even bigger returns.

So there it is, all the credit cards from American Express that come annual fee-free, the way it should be. Should there be any others, they will be added here as well.

Read more: Check out some Amex cards that waive the annual fee the first year.

Why Credit Card Regulations Are Worthless

The problem with imposing new rules on credit card issuers is their ability to quickly circumvent them and come up with new ways to make money.

It’s quite evident if you look at what First Premier Bank, a subprime credit card issuer, has done recently to skirt the impending rule changes set to take effect on February 21, 2010 (Credit Card Bill of Rights).

For example, the First Premier credit card typically comes with a minimum of $256 in fees during the first year for a $250 credit line, but because the new laws limit fees at 25 percent of a credit card’s total limit, it will be lowered.

Going forward, the bank will charge a $75 annual fee for a $300 credit line, but to make up for that lost profit, they’ve raised the APR from 9.9 percent to 79.9 percent.

That’s not a typo, it’s the highest APR tied to any credit card currently on the market, according to an industry analyst.

For cardholders with a $300 balance on the credit card, it equates to about $20 in monthly finance charges; assuming you pay $20 per month, you’d be looking at $315 in fees annually for a $300 credit line. Not a bad haul, eh?

First Premier is reportedly testing the new set-up to see how it works for them and their customers; the ultra-high APR is priced according to the “risk associated with this market.”

Even if they don’t stick to it, look out for similar tricks employed by credit card issuers to make up for any lost profit as a result of the rule changes.

Remember, the credit card issuers always win.

Read more: Credit Card Act II

Watch Out for Credit Card Inactivity Fees

By now, you’ve probably heard about credit card issuers paying customers to close their accounts in the wake of one of the worst credit collapses in history.

But the latest move by card issuers is quite the opposite; some are charging customers inactivity fees for dormant credit card accounts.

That’s right, if you fail to use your credit card for a certain period of time, you may be slapped with a fee (in the ballpark of $20) to keep it open.

Of course, it hardly seems worth paying it, given the fact that most credit card issuers do not charge inactivity fees.

However, some consumers have been led to believe that closing a credit card will do serious damage to their credit score, so they may hold off.

And though your credit score could fall as a result of a closed account, it probably won’t mean a whole lot if it’s a card you seldom use.

Additionally, there’s no reason you should pay a fee to keep your credit card open, regardless of the credit scoring impact.

If you feel you must keep it open, consider using the dormant card to pay a recurring monthly bill such as your gym membership or cell phone bill to avoid the inactivity fee.

Remember, the older the card account, the more value it has in terms of credit scoring, so don’t fret about closing a newer credit card.

And if you’ve got plenty of solid credit history, the “damage” to your score will likely be minimal if at all negative (Should I close my credit card account?).

Tip: Keep an eye out for changes to your credit card terms as issuers look to charge new fees to offset the impact of the recently passed Credit Card Bills of Rights.

Salvation Army Now Accepting Credit Cards

Another sign of the times folks…

This year, the Salvation Army red kettles, often situated outside of department stores and supermarkets during the holiday season, will accept credit cards as a form of payment.

No longer can you use the excuse, “I don’t have any cash on me, just my credit cards.”

Many of the signature red collection kettles will now be outfitted with credit card machines that give donors the option to specify an amount and receive a paper receipt in return.

That’s handy for keeping track of donations for tax purposes, and it may even lead to more money for the charitable organization.

The Salvation Army’s marketing director said the average credit card donation was a staggering $14, compared to just $2 for cash donations.

What a difference plastic makes…

Credit card issuers that receive interchange fees are also likely to profit from the increased use of credit cards, which now seem to be accepted nearly everywhere, from parking meters to valet and beyond.

The Salvation Army said the credit card transactions are being handled by a reputable third-party company and are completely safe.

It’s unclear if both American Express and Discover, as well as Visa/MasterCard-branded credit cards are accepted.

(photo: justinlai)

Credit Card Interest Rates May be Capped at 16 Percent

House Rules Committee Chairman Louise M. Slaughter is reportedly working on legislation that would cap credit card interest rates at 16 percent.

While 16 percent certainly isn’t low, it’s markedly better than the 30 percent interest rates tied to many credit cards these days.

The bill, which is expected to be introduced after the Thanksgiving holiday, is essentially a response to credit card issuers raising rates to offset the effects of the Credit Cardholders’ Bill of Rights.

Those changes, which include the elimination of arbitrary interest rate increases, two-cycle billing, and negative payment hierarchy, are slated to be implemented in February.

But with every new regulation thrown the credit card issuers’ way comes a fresh strategy to make profit some other way, e.g. higher interest rates.

Back in May, an amendment to cap interest rates at 15 percent was shot down in the Senate, so it’s doubtful this measure will see much a different fate.

Regardless of whether interest rates are capped at some seemingly arbitrary number, it’s wise to avoid hefty finance charges by paying balances off in full or utilizing 0% APR credit cards.

If you’ve got a large balance and a relatively high interest rate, consider a balance transfer to a 0% APR credit card or a low fixed-rate credit card for the life of the balance.

You’ll save a ton by avoiding credit card finance charges!

Watch Out for Post Transaction Offers Online

You just ordered a pizza online when a coupon appears before you, promising $10 off your next order.

To snag the offer, all you have to do is hit “next” or “yes” or “continue.” Before you know it, you’ve signed up for a recurring continuity program without even pulling your credit card out of your wallet.

A week or two later, you’ve got a bill for $10 from a company you’ve never heard of; you inquire about the charge and find out that you signed up for it unknowingly when buying another item online.

As a result, there’s a good chance the credit card company will not refund the charge, as it was authorized by you, whether you realized it or not.

These types of offers, that typically occur directly after you purchase an item online, usually when the confirmation page pops up, have generated billions for a handful of companies with Office Space-esque names like Affinion, Vertrue, and Webloyalty.

The worst part about the whole deal is these companies have entered into agreements with top retailers, such as Pizza Hut, 1-800-Flowers, Priceline, Fandango,, Orbitz, and Continental Airlines, that allow them to bypass the need to re-enter credit card information.

So by simply clicking “yes” to the offers, these third-party companies acquire your credit card information and are free to charge you monthly.

Unfortunately, consumers are often led to believe that the offer is coming from the original merchant whom they trust, adding to the misleading nature of the transaction.

My advice is to avoid these “special offers” and navigate those confirmation pages extremely carefully to ensure you’re not signing up for something borderline scammy.

And something should certainly be done to outlaw practices that don’t even require the card holder to provide their payment details; it’s downright irresponsible (Congress is considering it).

What Credit Score Do You Need a Rent an Apartment?

Credit Q&A: “What credit score do you need to rent an apartment?”

Like all things credit, nothing is written in stone here, but obviously the higher the credit score the better (what is a good credit score?).

Apartment shoppers should realize that not all landlords pull credit, but not bank on it.

And even if they do, they don’t necessarily have a certain threshold or particular three-digit number that they abide by.

Each landlord will have their own risk appetite and rules when it comes to credit scoring. In other words, you won’t necessarily be barred from renting an apartment if your Fico score is below 620.

This differs from banks that issue mortgages, which typically have rigid credit scoring tiers in place that are pretty much black and white.

You either meet the credit scoring requirement or you don’t, with few exceptions.

All that said, there isn’t a specific credit score you should aim for, but as a rule of thumb, shoot for the stars.

Landlords May Be More Lenient

With regard to renting, you’re probably going to find more leniency with landlords if you seek out duplexes or guest houses, along with smaller complexes.

Landlords at larger complexes will probably pull your credit for sure and chances are they’ll be more meticulous (and experienced with reading credit reports).

So what if the landlord pulls your credit and finds that it’s less than satisfactory?

In that case, you may need to obtain a co-signer, such as a parent or family member with better credit assuming you fail to meet your obligations.

If that’s not possible, the landlord may ask for a larger down payment (security deposit) as a means to mitigate the higher risk, though this clearly isn’t ideal for the renter.

However, these days you may find that landlords are a bit more lax because they’re just happy to rent their units out in the face of a tough economy.

If you have no idea where you stand credit wise, you may want to order a free credit report before you start looking for an apartment to see if there’s anything negative on your report.

There’s also a good chance you can use that credit report in place of the one the landlord would order (assuming you opt to get the score as well), saving you a little bit of money on that application fee.

This could be especially helpful if you’re shopping around at different apartments and don’t want your credit pulled numerous times (and it could prove to be a good negotiating tool if you’re going up against another candidate).

After all, it saves them the time and aggravation of ordering a credit report themselves.

If your credit score does happen to be low, you can still make an argument as to why you’re a solid candidate for the apartment, so don’t be discouraged.

Landlords Care About Rental History

Generally, landlords will be most interested in any rent-specific issues on your credit report.  Or perhaps a past mortgage delinquency if you’ve now been resigned to renting.

So if you’ve got great credit, other than an isolated late payment on a store credit card or something similar, they may look the other way, even if your credit score is depressed as a result.

From their perspective, you’re a good borrower overall, and you’ve always stayed up-to-date with housing payments, so you won’t be looked at as a huge liability.

Conversely, if there are signs of rental distress on your credit report, including disputes with former landlords, you may denied on the spot.

They won’t want to deal with someone who couldn’t get along with a former landlord, as such tenants tend to repeat their past behavior.

Tip: How to remove negative items from your credit report.