These Are the Consumers Getting Hit the Hardest by Credit Card Fees

A man paying for groceries with a credit card.

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The scoop on who's paying credit card fees and how to avoid them

Interest tends to be the biggest cost associated with credit card usage, but it's far from the only one. Credit cards come with a myriad of charges, from late fees and annual fees to balance transfer fees and foreign transaction fees.

As the old adage goes, "it's expensive to be poor," and that's certainly the case when it comes to credit cards. Consumers with deep subprime credit -- FICO® Scores of 579 or lower -- are the hardest hit by credit card fees. 

The latest CFPB Credit Card Market report looks at the fee-to-balance ratio, which is the percentage of fees against average balances. Even though it has fallen every year since 2015, deep subprime users still have a fee-to-balance ratio that is about five times higher than the average for all credit card users. 

The report breaks down the types of credit card fees and sheds some light on why deep subprime cardholders might be shouldering so much of the burden.

Late fees are the most costly

When the various credit card fees are broken out by fee type, it's clear that late fees are the most costly. They make up nearly half of all fee-related costs.

Late fees are fairly standardized thanks to CFPB regulations. Regardless of your credit score, you'll owe up to $28 for a first-time offense, and up to $39 for a subsequent offense. 

However, deep subprime cardholders pay a larger share of late fees than other cardholders. While superprime consumers own 59% of all credit card accounts and incur 21% of all late fees, deep subprime consumers own just 6% of credit card accounts yet incur 24% of all late fees. 

Missing a payment is one of the quickest ways to cause a significant drop in your credit score. So it makes sense that missed payments go hand in hand with low credit scores. Unfortunately, these can quickly snowball into unmanageable debt, and deep subprime consumers are likely to struggle the most to cover late fees on top of the payment they missed.

Annual fees are prevalent for users with low credit scores

The second most common credit-card-related fee, across all consumers, is the annual fee.

Deep subprime consumers actually tend to pay lower annual fees than consumers with good credit. The average annual fee on a general-purpose account held by someone with superprime credit is close to $100, while consumers with deep subprime credit pay an average annual fee of roughly $40.

This isn't surprising when you consider that credit card annual fees are usually charged in exchange for special features like a lower interest rate, rewards, travel perks, or other benefits. Some of the best travel credit cards come with annual fees of $450 or more, but if used smartly, the card's benefits can outweigh an annual fee. This explains why superprime consumers tend to pay higher annual fees -- they're getting premium rewards.

On the flip side, deep subprime consumers are most likely paying annual fees to get credit cards for people with bad credit. This subgroup probably isn't gaining anything in return for their annual fee as the charges simply mitigate the risk of approving consumers with low credit scores. 

Plus, while deep subprime consumers pay a lower annual fee on average, a higher proportion of accounts for consumers with low credit charge an annual fee. That's because consumers with a good credit score easily qualify for a no-annual-fee credit card, whereas consumers with bad credit often can't.

How to minimize fees if you have bad credit

While not as common, balance transfer fees, cash advance fees, and debt suspension fees were also present. Consumers should avoid cash advances whenever possible as they come at a high cost. Balance transfers should also be avoided unless you'd save enough on interest to make up for the balance transfer fee.

If you've got bad credit and you're using a credit card to rebuild your score, annual fees and late fees are the two biggest ones to look out for. You can avoid late fees by never missing a payment, and building an emergency fund will help you make sure that you always have money on hand to pay your bills. As for annual fees, there are a number of excellent secured credit cards with no annual fee that can help you rebuild even the worst credit.

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