Avoid annual fees whenever possible. Banks typically charge these fees for one of three reasons: A credit card offers a rewards program such as cash back or free travel; a card grants access to premium services such as advance ticket purchases; or a cardholder is deemed a risky borrower due to a low credit score or limited credit history.
The latter is a sticky situation, but you can shop around for lower fees as you build (or rebuild) your credit by paying bills on time and limiting the amount of new debt you take on. The first two reasons are a matter of choice. If premium services are worth the price tag to you, then by all means pay for the privilege. But if it is rewards points you’re after, be sure the value of the reward surpasses the annual fee every year.
Take the American Express Premier Rewards Gold card, for example. The annual fee is $175. If you charge more than $30,000 a year, you automatically receive 15,000 bonus points--the equivalent of $150--which can be redeemed for gift cards, travel and other rewards. You also earn a point for every dollar charged (two points per dollar for gas and groceries). In this scenario, you’ll easily recoup the annual fee. You might not, though, if you don’t collect the 15,000 bonus points.
Annual fees vary by issuer, but the CARD Act
caps fees at 25% of the initial credit limit. If you have, say, a limit of $500, then fees for the first year can’t exceed $125. If you are unsure why you’re being told to pay this annual charge, just ask. Banks now are required to tell you.
Paying Excessive Annual Fees