Credit Card Setup Fees

July 29th, 2010

Credit card issuing companies have to charge credit card setup fees because – surprise, surprise! – it costs money to establish and issue credit cards.

It’s not always clear, however, when you are being charged credit card setup fees and it’s up to you, the intending card user, to make sure you know what the details are.

Inevitable Setup Costs

When a credit card issuer gives you a credit card, they usually run checks on your credit history and rating. If the card is secured against some asset you own, there’ll be further costs associated with checking that the asset actually exists and is worth something. All that costs money which the company can choose – or not – to pass on to you.

Some credit card companies don’t always make it clear that the credit card setup fees are being charged at the outset. Sometimes they add the fee over the life of the card because that way they get their money back from the interest rates being charged.

No Annual Fee?

You will find other cards that don’t charge an annual fee for the first year. The card companies figure they’ll make the setup costs back through years of annual fees and interest charged on the usual purchases.

However, companies that offer balance transfer cards and low interest rate cards don’t like to waive the setup fees or annual fees because there’s a lot of turnover with these cards and the companies fear you won’t hang around long enough for them to recoup their administrative and setup costs.

Balance Transfer Fees

There’s another wrinkle with balance transfer cards. They may say they don’t charge setup and administrative fees. But if you look closely at the fine print, you often find they charge a percentage of the balance you have transferred from other credit cards.

Usually, it’s between 1% and 2% of the balance that you’ve transferred and the card companies add this to the balance you’ve shifted over. It’s another reason for paying off your transferred balance as soon as possible so that your savings on interest charged outweigh the extra costs.

Read The Fine Print

The reason credit card companies, insurance companies and some finance companies put all the interesting detail in the fine print is because they think you’ll be too busy or too uninterested to familiarise yourself with the details of the offer.

Don’t fall into this trap. Credit card companies must set out clearly all their setup fees and because it’s your money, it’s up to you to make sure you know what those details are.

Related posts:

1. Credit Cards Without Annual Fees

	Interest Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Cash Advance Rate (p.a.)
HSBC Credit Card	17.99%	0% for 8 months with 2% handling fee	$0	21.99%
Virgin No Annual Fee Credit Card	18.99%	2.9% for 6 months	$0	20.99%
Bankwest Zero MasterCard	0% for 6 months (reverts to 17.99% )	4.99% for 9 months	$0	18.99%