Utilization Fee

A utilization fee is a charge that a credit card issuer may impose on a cardholder if the cardholder's credit utilization ratio exceeds a certain threshold. The threshold is typically set at 30%, but it may vary depending on the issuer.

Utilization fees are designed to discourage cardholders from using their cards too much. If a cardholder's utilization ratio is high, it may indicate that they are at risk of defaulting on their debt. This can lead to the issuer raising the cardholder's interest rate or even closing their account.

Utilization fees can be a significant expense for cardholders. For example, a cardholder with a $10,000 credit limit who charges $3,000 on their card and then pays off the balance in full each month may be charged a utilization fee of $30. This fee would represent a 3% annualized cost on the cardholder's outstanding balance.

It is important to note that not all credit card issuers charge utilization fees. Some issuers may only charge these fees if the cardholder has a balance that is past due. Others may not charge utilization fees at all.

If you are considering applying for a credit card, it is important to read the terms and conditions carefully to find out if the issuer charges utilization fees. If they do, you should make sure that you are aware of the threshold and that you are unlikely to exceed it.

Utilization fees can be a significant expense, so it is important to take them into account when choosing a credit card.