UNFRIENDLY credit card CHARGES you must know

Be careful about what and how you spend using your credit card while travelling abroad.

I went on a foreign trip recently and enjoyed it a lot. Foreign currency was not a problem as I was having an international credit card. I swiped it every now and then for shopping, dining, buying tickets and number of other things. I had never used my credit card in a better fashion in the past and was praising my bank for it in my conversations with my travel mates. They all were in full agreement with me on this topic.

It's not like I am habituated to mindless spending as I was fully aware of my budget. Mental calculations were on with the currency exchange rate in mind and at the end of my trip I almost spent the whole budget. I was patting my back for not overshooting the budget.

Investmentyogi.com is a one-stop personal finance website which helps in managing finances, investments and taxes through services like financial planning, online tax filing, budgeting and 'Ask the Expert'.

After returning back, I received my credit card statement and was shocked to know that I almost overspent in the range of 5 to 6 per cent. I redid my calculations fearing a mistake but reached the same old figure which was 6 per cent lesser.

When I called my bank for clarification, I came to know about few interesting but not too friendly charges regarding foreign transactions.

In this article I will be discussing the same so that you don't get the same shock which I got once I received the statement.

Reason for the 5 to 6 per cent deviation in my credit card bill

Your credit card issuing bank and the network service provider (MasterCard or Visa) apply extra charges on foreign transaction done through your credit card. So, calculation done simply using currency conversion rate gives an understated value.

Bad news for a consumer like you and me!

What is the type and amount of charges involved?

Following charges are applied by various entities involved in the transaction:

Currency conversion fee: Whenever a foreign transaction takes place through your card network service providers (MasterCard or Visa), apply a conversion fee in the range of 1 to 2 per cent.

Overseas transaction charge: Whenever a foreign transaction takes place through your card, the issuing bank applies a transaction fee in the range of 2.5 to 3.5 per cent of the transaction amount.

Cash withdrawal fee: As you are already aware cash withdrawal through a credit card is costly even in India, it needs to be costly overseas too. On cash withdrawal in foreign currency your bank applies some additional charges which vary bank to bank. It will be in addition to local cash withdrawal charges.

What about the currency conversion rate?

Even though there is no additional charge for currency conversion, the currency conversion rate might not be the same as on date you did the transaction. Conversion rate applied will be of date when transaction is posted to Visa/MasterCard by the merchant.

There might be a case when merchant sends this data one or two days post actual transaction date.

Can we know about the charges applied beforehand?

You can enquire with the customer care of the bank regarding this data and they will tell you the applicable charges beforehand. You can use this data to do the cost benefit analysis of using your credit card for foreign transaction.

One of the better uses of this data is to find out the best credit card which you can use overseas with minimum cost.

If you are a frequent flier, you should choose only those credit cards for which the charges are minimal. All said and done, getting currency converted manually through some agent or bank will still be cheaper as compared to using credit card.