Final answer:
Credit card companies can charge finance charges, late fees, and annual fees. Late fees can include a flat fee plus daily charges for unpaid amounts, while carrying a balance incurs interest charges based on the annual interest rate which is typically between 12% and 18%.
Step-by-step explanation:
The various ways in which credit card companies can charge you include finance charges, late fees, and annual fees. To elaborate, finance charges are the cost associated with the borrowing of money which is calculated based on your outstanding balance and the interest rate. Late fees are charged when a payment is not made on time. For instance, a company may charge a flat $10 for a late payment plus additional fees, such as $5 a day each day the payment remains unpaid. Lastly, some credit cards have an annual fee which is a yearly charge for the privilege of using the credit card.
To avoid these charges, it's important to pay your balance in full and on time whenever possible. Carrying a balance means that you will be subjected to the agreed annual interest rate, as credit cards typically have interest rates ranging from 12% to 18% per year. With almost 200 million Americans being cardholders, it's essential to understand how these costs can add up, especially since Americans pay tens of billions of dollars every year in interest on their credit cards, in addition to basic fees for the card or for late payments.