Credit Card Guide

What is an Application Fee?

5 July 2011 by CreditCardsCo™

There are many fees that you could pay when you have a credit card. Some of these fees are penalties for irresponsible credit management and others are maintenance charges. Some fees seem unnecessary while others are designed solely for card issuer profits. Fortunately, there are new laws that protect you from excessive fees.

Fees are common with credit cards. Some of them are reasonable, acting as penalties for mismanagement of your account. Others seem to be intended for the purposes of profit, which is only fair. New laws attempt to prevent consumers from gouging through the abuse of credit card fees in order to keep it fair.

Credit cards can be confusing, especially when it comes to understanding interest rates and fees. There are a number of factors that credit card companies use to determine what to charge and understanding them can help you be a better credit consumer.

Necessary Fees

Your credit card company will charge fees for a variety of things. Many of these are penalties:

  • Overdraft charges
  • Late payment charges
  • Returned payment charge
  • Missed payment fee

There are also processing fees that you can avoid. These are luxuries that are unnecessary but available if you want them. They could include:

  • Copy charges for reprinted statements
  • Cash advance fee
  • ATM fees

These are fees that you can avoid just by being responsible with your account. As long as you make your payments on time and track spending, you will never have to pay these fees. These fees are designed to keep you honest and responsible.

Additional Fees

Your credit card company might also have a variety of other fees that you cannot avoid but you must pay if you want to access your account:

These fees are designed to generate profits for credit card companies. They are basically service charges that you pay, as a customer, in order to open and maintain your account. For example, not all people who have credit cards use them regularly, so they do not pay any interest. An annual fee ensures that credit card companies can make money on the account. Similarly, an application fee is something that ensures they can make money before the account is even opened.

What You Don't Know About Application Fee

While you are probably familiar with the practices of assessing fees on your credit card, you may not know that there is a set of regulations that ensures consumers are not gouged with these fees. The new Credit Card Act of 2009 set new standards that ensure that credit card companies can only charge up to the full 25% cap on first year fees. This includes the annual fee and the application fee. Although the cap has always been in place, a loophole was recently discovered that allowed some companies to overcharge. The new regulations prevent this.

The application fee is something that is more common with secured credit cards and charge cards. This makes sense since these cards are generally offered to people with unsteady credit histories. It ensures that the credit card company will either recoup what they could lose from a default or from the lower credit limit.

Another thing that you might not know about application fees is that you could avoid them altogether! The credit card industry is highly competitive and companies are constantly trying to find ways to draw new customers. This means that anytime you find an auxiliary charge, you could request that the company remove it. It never hurts to ask, especially if you remind them that you could take your business elsewhere.


The application fee is one of many potential fees you could be charged with a new credit card. There are regulations that ensure it is a reasonable charge, but if you don't want to pay it all you could try asking!

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Credit Card FAQ

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