A credit card annual fee is a fee automatically charged once a year to your credit card account for the convenience of the credit card. Annual fees, when they're charged, range from $15 to $500.
Cards That Typically Have An Annual Fee
Not all credit cards have an annual fee. A few categories of credit cards are more likely to have annual fees: reward credit cards, premium credit cards, secured credit cards typically have an annual fee. The annual fee increases the cost of having a credit card. If you pay an annual fee, make sure the benefit you're getting from your credit card exceeds that cost. For example, if your rewards credit card has an annual fee, the rewards you earn should exceed the annual fee. Otherwise, having the card isn't that beneficial.
How the Annual Fee is Charged
The annual fee might be a one-time charge on your credit card during a specific month of the year, usually around your card's anniversary or at the beginning of the calendar year. Or, the annual fee may be divided up and assessed monthly. It's more common for cards to charge the annual fee once a year.
How to Avoid an Annual Fee
Many credit cards waive the annual fee in the first year. That is, for those cards that charge an annual fee. After the first year, the fee is automatically charged to your account. If, after the first year, you decide the annual fee isn't worth it, you can close the account, but not before assessing the impact to your credit score and redeeming any rewards you've accumulated.
Or, you can switch to another credit card with the same issuer, but one that doesn't have an annual fee. Note that by downgrading your account may lose some benefits and you may not incur rewards at the same rate. However, you've avoided the annual fee, which could be better in the long run. Again, make sure you redeem your rewards before making any changes to your credit card account to avoid losing your rewards.
Some credit cards allow you to avoid the annual fee by charging a certain amount on your credit card each year. Contact your credit card issuer to find out how you can have your annual fee waived.
If your credit card issuer decides to impose a new annual fee or raise the current one, they're required by federal law to notify you 45 days before the new annual fee becomes effective. You have the option to reject the new annual fee, however, you'll have to close your credit card if you decide to opt-out. Think hard before opting-out because closing a credit card could hurt your credit score.
Paying an annual fee isn't necessarily a bad thing, sometimes it's just a necessary part of having the credit card you want. But again, be sure the benefits of the card are worth paying the fee. Compare your card to similar credit cards from other credit card issuers to confirm you're getting a good deal.