What You Are Not Told About Credit Cards

Written by Ruth Njiri

A credit card can be a powerful tool that if used responsibly can make you manage your money easier. It is true that a credit card can help you build a great credit score. However, one of the biggest mistakes you can make as a customer is to get a credit card without fully understanding the responsibility and charges that come with it.

Most lenders sell credit cards enticing you with benefits such as reward points and so on, but they rarely highlight the actual charges that you will be subjected to. Credit cards can be helpful, but you must be wise about choosing the right card for you. This starts with taking into account the charges and penalties that apply as you use that credit card.

This is because, a credit card allows you to borrow money from your lender and this borrowing is in the form of a short-term loan. This then allows you to make various purchases and pay them back within a given period. If you fail to pay back the money in the agreed upon time frame, the bank charges you a penalty.

Other than this penalty, credit cards have various charges associated with their usage. Every credit card provider has a different set of costs and penalties associated with their cards. Credit card issuers will charge certain fees based on the type of card you have and sometimes even take into account how you use it.

Most of the time, the lenders can customize the fees and penalties according to your credit rating with them. If you have a good credit rating with them they can be agreeable to negotiating for lower interest rates. 

Most of the fees are designed to encourage you to pay on time, while other fees cover the cost of certain types of transactions. It is good to have an in depth understanding of each of those fees so that you can use the credit card to your advantage.

The typical fees that apply to most credit cards in Kenya include:

  • Entrance or Joining fees: These are the one-off fees you pay at the initial issuance of a credit card.
  • Annual fees: These are the fees you pay annually for using the credit card. Usually, lenders charge this fee when the card is being renewed.
  • Cash Advance fees: A cash advance fee is the charge you have to pay for borrowing cash against your credit card.
  • Late Payment fees: A late payment fee is charged when you do not make at least the minimum payment by the due date. Different lenders have different rates and the percentages will also vary depending on the type of card you have. You can avoid this by making a standing order that is able to directly debit your account every month to pay the credit card bill in full.
  • Over-the-Limit fees: An over-the-limit fee is charged when your balance exceeds your credit card limit.
  • Card replacement fee: This fee is charged when your card is lost or damaged.
  • Supplementary card fees: This fee is charged when one orders an extra card that is still attached to the same credit card account. Some lenders also charge supplementary card annual fees, upon renewal of the credit card.
  • Foreign or Overseas Transaction fees: A foreign transaction fee is a charge the lender charges on your credit card when you use it on purchases outside of the country the card was issued in. When choosing a credit card, make sure it allows you to use it in any country without charging extra foreign transaction fees.

To become a responsible credit card user, make sure you ask your lender for the fees listed above and make comparisons with other banks with similar cards. This can also help you negotiate for better rates. Make sure you make a decision on getting the credit card because you shall be able to handle the fees stated above, if they ever come into effect.

In order stay in control of the charges and penalties above, here are some helpful tips.

  • Some credit cards charge zero interest for a limited time called a grace period. Most credit cards in Kenya come with an interest-free period. As long as you clear the balance in full when you receive your monthly statement, there is no interest to pay. If you are unable, it is also advisable to try and pay at least the minimum amount due on your credit card each month. 
  • Look out for penalties on missing a payment. Take into account your lenders terms and conditions when you miss a payment or miss the payment deadline. Also look out for penalties when you exceed your credit limit.
  • Monitor your credit card spending by constantly and consistently going looking through your bank statements, ensure you are spending what is only on your budget and nothing more.
  • Despite the provision, try as much as possible to not withdraw money from an ATM. There is usually a high fee charged for cash withdrawals and the rate of interest is also notably higher than on using a debit card. 
  • Some people prefer credit cards to cash as they can be more secure. If your card is lost or stolen, you can simply report the incident to the bank and cancel the card.

Depending on how you use them, credit cards are financial tools that can save you money or completely ruin your finances. If you are disciplined enough to always pay back what you borrow each month, a credit card is a safe, secure way to spend. Simply put, credit cards require you to have good financial disciplines and develop responsible spending habits.

What do you think about hidden charges associated with credit cards? Please comment below and let us know if you have ever been affected.

Good luck!

Learn more:

  1. What is a credit card?
  2. 7 Things you know about credit cards

About the author

Ruth Njiri