The Fee Frenzy

Your bank may not be out for blood, but it would sure like a bigger bite of your wallet.

In order to turn a profit, lenders have gotten creative when it comes to concocting fees. With rock-bottom interest rates and a savvier customer base card-hopping to get the best deal, fees are what's keeping the lights on.

Their craftiness is certainly paying off. Income from penalty fees accounts for more than one-third of profits. Last year the industry collected an all-time high of $24 billion from customers just going about their everyday charging business. It's not just your money on the line -- it's your reputation.

The easiest way to avoid any wrongdoings is to pay your bill on time. Timeliness is next to godliness to those who lend. If you haven't gotten socked with a late payment fee in a while, please have a seat. A decade ago, credit card customers paid on average $20 when they missed the payment deadline. Today, you'll pony up more than double that (up to $45) for a single foible.

To avoid a steep late penalty, you'll pay handsomely. Most big credit card companies offer online bill payment, gushing that it's the latest convenience for today's busy households. "No stamps! No envelopes!"

No thanks. If you have to pay your bill the same day, prepare to cough up $15 or more. Writing the due date on your calendar is a much cheaper way to go.

Maybe tardiness isn't your problem. (Just 3% of credit card accounts are past due by 30 days or more each month.) Do any of these line items sound familiar? Over-limit fees, activation fees, annual fees. How about these? Convenience checks, balance transfers, credit insurance, ID theft protection. Or maybe you've received a prepaid gift card only to discover that those gift dollars are getting eaten up by account inactivity fees, a monthly maintenance fee, or even charges to check your account balance. You name it, and your credit card issuer has found a way to charge you for it.

It's not just fees that'll leave you hurting. Any missteps, and you can kiss your low interest rate goodbye. The majority of credit card issuers hike the interest rate when a customer is late with a payment. Been lazy about paying someone else on time? Big Brother will know. And he can legally raise your interest rate based on your payment record with some other creditor.

Those few dollars in late fees and extra points on your APR may not seem like much, but they can sure take a bite out of your borrowing power if you're a frequent offender. Many service providers are quick to send collection agencies after deadbeat bill payers. And a collection action can turn up on your credit report, marring your ability to get a loan for a mortgage, car, or credit card, and even a job or apartment.

If you aren't a frequent offender, ask the lender to forgive a one-time gaffe such as a late payment. To protect yourself from all other costly inconveniences, follow that time-honored (and free) advice: Read the fine print.

Want to know what your banker is saying about you? We're cleaning up our credit around Fool HQ. Come compare FICO scores.

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