What is a Maintenance Fee? A Closer Look at the Common Subprime Credit Card Charge

I spend a lot of time pondering questions with no clear answers: Am I saving enough money? Where did that second sock go? Some things we’ll just never know. But when it comes to credit card maintenance fees, we can find the answer — and I did. My research on fees will answer why some cards have fees and others don’t.

A credit card maintenance fee refers to a monthly charge subprime credit card issuers impose for the privilege of using their cards. The maintenance fee covers the cost of maintaining and operating specific credit cards, such as those with credit-building benefits. 

Some subprime credit card issuers charge monthly maintenance fees as a way to mitigate their risk while providing access to credit.

All credit cards are not created equal — you can find many cards that don’t charge maintenance fees. But if you want to build credit, you may have to choose a credit card with a maintenance fee and live with the price tag. 

In this article, I’ll explore different types of credit cards with maintenance fees and why these fees are required to maintain these types of accounts.

Credit card maintenance fees may sound like a negative, but the trade-off can be worth it. If you have trouble accessing credit, maintenance fees will most likely be involved when you get a credit card. 

Below, we’ll look at different types of credit cards with maintenance fees. 

Types of Credit Cards with Maintenance Fees

Not many credit cards have maintenance fees. But the ones that do have valid reasons for applying them. 

Subprime credit cards are the primary card type with maintenance fees. Like its name implies these cards have a specific audience: subprime borrowers. 

Credit card issuers design subprime cards with certain limitations and requirements to offset risk for taking on subprime applicants, or individuals with bad credit. Those requirements tend to include high APRs, low credit limits, and — you guessed it — maintenance fees. 

Most credit cards for bad credit, sometimes known as credit-builder cards, don’t have many rewards, other than helping you build and access credit. There are a few of the exceptions out there, but most fall under the category of rewards-free.

A reloadable credit card is another type of card that includes maintenance fees, but reloadable cards don’t actually extend you any credit. Reloadable credit cards are similar to prepaid cards, but they allow you to reload cash when you need to and purchase anywhere credit cards are accepted. 

These cards carry maintenance fees to operate. So that’s why while using a reloadable card, you may run into activation fees, reload fees, and ATM charges, among other charges. 

Typical Fee Structures

The fee structure can vary depending on the card. Subprime credit cards design their cards with various requirements and fee models. 

One card issuer may request a deposit, an annual fee, and maintenance fees, while another might not require either a security deposit or an annual fee. 

Maintenance fees are typically a monthly charge. One highlight is that most card issuers waive their maintenance fees during the first year of ownership. 

Issuers typically charge maintenance fees every month, but they may offer to waive them for a certain period of time. Read the terms and conditions carefully so you don’t get surprised.

For example, the Total Visa Card waives its maintenance fees in the introductory year. But once the second year of ownership comes along, the card will require you to pay an $8.25 monthly service fee. 

In the past, credit-building cards primarily had monthly maintenance fees. However, several fintech companies have joined in on this strategy and offer monthly fees with their cards as well. 

Similarly, TD Bank introduced the TD Clear Credit Card following a monthly fee framework. Instead of charging interest, TD Bank replaced the interest rate with a monthly maintenance fee. This way, you can carry a month-to-month balance and avoid compounding interest. 

To understand maintenance fees, you can think of subscription fees. Building credit may not have the same excitement as watching a Netflix action movie, but both activities have one thing in common: monthly fees. If you want access, you have to pay a recurring charge to enjoy that access. 

Below, I explain why issuers charge maintenance fees. 

To Offset Risk Posed by Subprime Borrowers

Credit card issuers charge maintenance fees to lessen risk when offering subprime applicants credit.  

Credit borrowers are categorized by their credit history, financial responsibility, and creditworthiness. Credit card issuers usually classify subprime borrowers as individuals who have poor credit histories and manage debt irresponsibly. 

For instance, if you had a credit account where you frequently had late payments, that could affect your credit history and mark you as a subprime borrower. 

Because of their history and risk, subprime borrowers have a more challenging time finding access to credit from issuers. 

Subprime card issuers charge maintenance fees and often higher APRs to make more profit and offset the risk posed by subprime borrowers.  

Covering Operational Costs

Credit card issuers use maintenance fees to offset the cost of offering extra benefits. In this case, the benefit is access to credit. 

Maintenance fees help credit card companies make a profit and cover their operational costs, so they can offer their service to subprime borrowers.

While researching different subprime credit cards, I realized there are variations in maintenance fees and benefits. Some cards offer better services than others. Below, I’ll explore the benefits and drawbacks of maintenance fees. 

Benefits

When you hear the word “fee”, you don’t usually think about the benefits. But maintenance fees can come with benefits, depending on your perspective.  

Subprime borrowers typically have trouble qualifying for traditional credit cards. Credit cards with maintenance fees offer borrowers two primary benefits: credit access and the ability to build their credit. 

Having credit gives you access to more financial opportunities, no matter how small it may be. Subprime credit cards tend to have lower limits but cardholders can still use them for everyday purchases. 

Credit cards with maintenance fees also allow you to repair and build your credit history. All credit card issuers report payments to credit bureaus. If you establish better payment habits, you can use your subprime credit card to build your credit score and history over time. 

Although not common, some subprime cards do offer rewards programs in addition to their primary benefits. These programs usually include 1% cashback rewards. The only caveat to consider is that the maintenance fee’s price can sometimes outweigh the amount of cashback you receive, making the cashback negligible.

Drawbacks

Of course, paying a maintenance fee in itself is a drawback. Maintenance fees are the negative borrowers have to deal with until they can build their credit history and access traditional cards again. 

Regardless of your current payment habits, you will have to pay maintenance fees as long as you have a subprime credit card. Most maintenance fees are under $10 a month. But monthly fees accumulate and added with other charges, you can end up paying hundreds of dollars a year. 

High APRs can also compound the situation. Interest rates can impact your expenses if you maintain a high balance on your card and don’t pay it off every month. Clearing your balance every month can help you avoid those added expenses. 

As for the subprime credit cards with rewards, you will need to use the credit card often to rack up rewards. Without frequent usage, you can end up paying a high maintenance fee and not leverage any of the rewards or benefits that come with the credit card.  

Maintenance fees are charged by subprime issuers and are specifically targeted to people who can’t get approved for cards with better terms. 

Monthly service fees and subprime credit cards tend to go hand in hand. So if you want to get approved for unsecured credit, you will have to agree to pay maintenance fees to access this form of credit. 

But understanding credit responsibility can help you get ahead of the curve and build a high enough score to avoid paying maintenance fees altogether. After all, education is the best foundation for financial security and freedom. 

There are several healthy habits you implement into your financial routine to avoid creating a poor credit history — the root source of maintenance fees. I’ll share some tips for how to maintain a solid credit history. 

Poor credit history is typically a product of poor financial habits, planning, or budgeting. Mistakes can happen and cause your credit score to take a bump. But integrating simple and consistent habits can enable you to build a much stronger credit history, which improves your financial opportunities. 

Maintenance fees aren’t the only fees to watch for out there. Credit card companies impose a host of fees to maintain their operations. I’ll list some common ones you will see while shopping for a credit card, traditional or not, below:

• Annual fees: Credit card issuers often charge a yearly fee to use their cards. These fees may cover additional benefits, including premium rewards and cashback programs. Most annual fees range between $50 to $500 — some go above $500.  
• Signup fees: You pay these fees when opening a new account. It’s a one-time fee that is required to sign up for a credit card. Not all credit cards carry signup fees but subprime unsecured cards do.
• Foreign transaction fees: When traveling internationally, you may face foreign transaction fees depending on your card’s fee structure. If you make purchases in a foreign currency or another country, credit card issuers could stick a fee on top. The fee can range from 1% to 3% of each transaction.
• Late payment fees: Credit card issuers impose late fees when you fail to pay on time. Late fees can vary in amount and accumulate quickly, so it’s best to be diligent with your payments.
• Over-limit fees: When you exceed your card’s limit, you can receive an over-limit fee. The good thing about over-limit fees is that you can opt out of them. The CARD Act of 2009 requires credit card companies to provide an opt-in or opt-out option for over-limit fees. So if you choose to opt out, any purchase over your credit card’s limit will be denied. 

Understanding fee types is key to maintaining your financial health and keeping your credit in good standing. It can also help you choose the right card with the right fee structure and terms for you, so you can avoid paying unwanted or unnecessary charges, which can accumulate in the long run. 

Although you can find cards with zero maintenance fees, choosing a credit card with maintenance fees can be your only option in some cases. Those cases include when you need a credit-building opportunity or have trouble accessing credit due to a poor credit history or score.

If you need help building your credit, maintenance fees may seem like a small price to pay compared to the benefits you can receive with having credit. I recommend you examine the credit card’s terms and conditions closely to determine whether its fee structure will be a good fit for you. 

I aimed to answer a lot of the pressing questions out there about credit card maintenance fees. And one takeaway stuck out to me in my research: Whatever you choose, don’t let the monthly cost outweigh the benefits.