What a credit card really costs in a year

What a credit card costs in a year is the total of its fees over 12 months, plus interest if you carry a balance. Start with the fees you pay just for having the card, then add the ones you're likely to run into. Every rate and fee is listed in the card's rate and fee table, so you can do the math ahead of time.

Start with the fixed costs

Fixed costs are the fees you pay for having the account, whether you use the card every day or once a month. Add these up first.

• An annual fee counts once per year.
• A monthly fee, sometimes called a maintenance fee, counts 12 times.
• A setup or program fee for opening the account counts once, in the first year only.
• A fee for adding an authorized user counts if you plan to add one.

Fixed fees that go on the card use up part of your credit limit. Under the CARD Act, the fees charged in the first year generally can't add up to more than 25% of your starting limit. Late fees and fees for things you choose to do, like a cash advance, don't count toward that cap.

Then add the costs that depend on how you use it

Some fees only show up if something happens. They're harder to predict, so think about how you've used cards in the past.

• A late fee applies if you don't pay at least the minimum by the due date. A returned payment fee applies if a payment bounces.
• A cash advance fee is often a percentage of the amount, with a minimum dollar charge.
• A balance transfer fee is usually a percentage of the amount you move.
• A foreign transaction fee can apply to purchases made in another currency or processed outside the US. If you travel or shop on overseas websites, count it.
• An over-limit fee can only be charged if you've opted in to over-limit transactions.

A worked example

Say a card has the terms below. The numbers are made up to keep the math simple.

• Annual fee: $75
• Monthly fee: $5
• Late fee: $30
• Cash advance fee: 5% of the amount
• Purchase APR: 24%

The fixed cost is $75 plus $60 (12 months of $5), so $135 a year. That's the least the card can cost you, even if you pay every statement in full and on time.

Now say you pay late once and take one $200 cash advance. That adds $30 and $10, so the fees come to $175. The cash advance also starts collecting interest right away.

Interest can end up as the biggest cost. If you carried a $500 balance all year at 24%, simple math puts the interest at about $120, and a bit more once it compounds. Add that to the fees and the card costs around $300 for the year. Paying the full statement balance by each due date usually avoids interest on purchases, if the card has a grace period.

How to read the rate and fee table

Card issuers have to show rates and fees in a standard table, often called the Schumer box. It comes with the card's terms and your card agreement. The layout is the same from card to card, which makes comparing easier.

The top half covers interest.

• APRs for purchases, balance transfers and cash advances, plus any penalty APR and what triggers it.
• A row on how to avoid paying interest on purchases. It tells you whether there's a grace period and how long it is.
• Any minimum interest charge, which is the smallest amount you'll be charged in a month when interest applies.

The bottom half covers fees. They're usually grouped as setup and maintenance fees (annual, monthly, account opening), transaction fees (balance transfers, cash advances, foreign purchases) and penalty fees (late, returned payment, over-limit).

Read the wording next to each fee. "Up to" a dollar amount gives the most a fee can be. "Whichever is greater" means there's a minimum fee, even on a small transaction.

What to do next

1. Open the rate and fee table for a card you have or are looking at.
2. Add the annual fee, 12 months of any monthly fee and any one-time fees. That's the card's fixed yearly cost.
3. Add the usage fees you're likely to pay, based on how you've used cards before.
4. If you expect to carry a balance, multiply it by the APR for a rough yearly interest cost.

The CFPB's credit card guides explain more about card costs and your rights as a cardholder.

This guide is general education, not financial advice. Card rates, fees and approval are set by each issuer, so check the issuer's own terms before you apply.