If you recently went to a foreign country and used your credit card while there, you may have been taken aback to see a foreign transaction charge on your credit card statement when you returned home. It is not a mistake; this is a real cost associated with many credit cards, and you may have difficulty getting the charge returned after the fact. Whenever you use using a credit card in a country other than the United States, when you make a domestically purchase in a currency other than the U.S. dollar, or when you buy anything in U.S. dollars from a retailer that does not process the transaction in the United States, you may be subject to the charge.

How Credit Card Foreign Transaction Fees Work

The ease with which one may convert a foreign currency into United States dollars is reflected in the price of these fees. Because they are normally assessed at the end of your monthly billing cycle, you will be required to pay the initial price in addition to the markup of the charge for any overseas transactions relevant to your account. Consider the following illustration of how the costs associated with using a credit card abroad are applied:

• While on vacation in Italy, you use a credit card part of the Visa network to pay for a supper that costs $100.
• Your supper will have an additional price of 1%, or $1 if you pay with Visa.
• The issuing bank of the credit card assesses a fee equal to 2% of the entire cost of the meal, which amounts to an additional $2, bringing the total cost of the international transaction fee to 3%.
• A $103 (100 multiplied by 0.03) will appear on your credit account.
• As the above illustration demonstrates, the charge can potentially drive up the expenses of individual foreign transactions and the total cost of travel abroad. Also, even if your credit card gives points, you won't necessarily get rewards for the amount you spend on international transaction fees. This is assuming that your credit card offers rewards.

Credit Card Foreign Transaction Fee

Card Network Fee:

Networks that handle payments made with credit cards, such as Visa, often assess a fee equal to around one percent of the total cost of the transaction.

Card Issue Fee:

On top of the price charged by the network, financial institutions such as banks and credit unions that issue credit cards add an extra one percent to two percent in fees.

How to Reduce the Cost of Making International Purchases

You may keep your expenses for international travel to a minimum by avoiding credit cards that impose these fees or by selecting cards whose fees are on the lower end of the range described previously. Before going on a vacation abroad, you should consider getting a credit card that doesn't charge a fee for making purchases in a foreign currency since many options are available. Because the foreign transaction fee has been eliminated from all of Capital One and Discover's credit cards, if you already have one in your wallet, you may use it on your trip without worrying about accruing any additional costs because you won't be charged any. In a similar vein, Visa, Mastercard, and American Express each provide certain of their cards that do not have a charge associated with transactions made in other countries.

Read the disclosures with your credit card, whether you are looking for a new card or attempting to discover if the fee is included with your current card. This will tell you whether or not you will be charged a cost for transactions made in a foreign currency and how much that fee will be. This is essential information for any credit card you may use for transactions made in a foreign country. If you do not have a copy of the agreement for your credit card, you may locate it on the website of your credit card issuer or in a database maintained by the federal government that contains credit card agreements.

You might also contact the company that issued your credit card to find out whether or not it levies a cost for transactions made in a foreign country and, if so, how much that price is. Tell the issuer of your credit card that you will be going internationally while you are on the phone with them so that they will not immediately suspect any transactions you make while you are away as fraudulent. Bear in mind that due to the increased security offered by chip credit cards, several issuers, including Bank of America and Capital One, no longer require customers to keep these notifications.