The use of credit cards costs everyone in the form of higher prices for goods. Retailers are charged a merchant fee to process credit card transactions, which is passed onto all customers. It is illegal to charge a higher price for goods purchased on credit cards, thus every consumer pays the price as the retailers price their goods to allow for the additional cost of processing card payments. The costs incurred by the individual credit card user on the other hand, vary enormously.
Cardholders who use their credit cards astutely pay nothing whatsoever if they use a card with no annual fee. Consistently clearing the balance in full each month results in no interest accruing, and no late payment fees. Never using a card to obtain a cash advance ensures that those who pay their balances in full can use them effectively for free, even turning a profit by using cash back or reward cards.
Whilst these astute card holders protect their credit scores by handling their credit cards in this way, others pay a hefty price for irresponsible use of credit cards. Anyone who carries a balance pays interest on their purchases unless a 0% credit card is used. Credit card providers prefer their customers to carry a balance and make only minimum payments, thus they can profit from interest rate charges. Those who fail to make their payment on time pay the extra cost of late fees and often incur penalty interest rates, which make the cost of borrowing prohibitively expensive.
Using credit cards to obtain cash is a foolhardy venture, as interest accrues from the moment the transaction is carried out. Even those with 0% APR cards pay a special interest rate of around 27% to obtain cash advances.
Consumers with a poor credit history often pay the price associated with credit cards from sub prime lenders, often their only option once a credit reputation is on the slide. Sub prime lenders typically charge fees for their credit cards, levy high interest rates, or demand a security deposit which often fails to return any interest. Consumers willingly shoulder the costs in either a desperate desire to obtain credit, or as the necessary price to re-establish their impaired credit history.
Following the credit card reforms of 2010 credit card providers are no longer allowed to charge application fees and annual fees that exceed 25% of the available credit limit. They are also required to print a breakdown on customer statements explaining how long it would take to repay a credit card debt if only minimum payments are made. Imaginative charges such as fees for not using a card frequently have been stopped.
It is entirely up to the individual card holder to determine how much their credit card will cost them. Usually it is those who can least afford the costs that end up paying them. Paying attention to the terms and conditions of the credit card agreement, and following good practices such as never carrying a balance and never using credit cards for cash advances, can result in the cost of credit being free.