Differences in international monetary standards make spending money abroad often confusing and even downright difficult. When it comes to traveling overseas, consumers must not only determine the acceptable methods of payment for the countries they plan to visit, but also figure out a way to avoid foreign transaction fees and get the best exchange rates. On the other hand, international businesses—tasked with tackling the logistics of accepting international credit cards—often need to establish international merchant accounts and join international credit card processing networks. Given the obvious importance of international spending in our global society, we have constructed this International Credit Guide to help you learn about and avoid the pitfalls of international credit card use.

• What’s an international credit card?
• What fees are associated with an international credit card?
• Which international credit card is the most highly recommended?
• What are international merchant accounts?
• How can I accept international credit cards?
• How does international credit card processing work?
• How do magnetic stripe credit cards differ from chip-and-pin credit cards?
• Where can I get an international prepaid credit card?
• What are international debit cards?
• Should I get an International Credit Card or an International Debit Card?
• Are we close to global credit card interoperability?

What’s an international credit card?

A lot is different when you travel abroad. The food, the language, the fashion and the culture are all somewhat unfamiliar, as is – of course – the money. In order to buy anything in a foreign country you must have access to the native currency and this means currency exchange. However, exchange rates and the logistics of currency conversion can be both confusing and rather costly. Since foreign travel is difficult and expensive enough as it is, we at Card Hub decided to answer the most prevalent currency exchange questions in order to provide you with everything you need to know before your next trip abroad.

• What is Currency Exchange?
• How can I exchange currency?
• What is the cheapest way to convert currency?
• What are No International Fee Credit Cards?
• Will my credit card work outside the U.S.?
• What are the most widely accepted international credit cards?
• When should I convert my currency?
• How much currency should I convert?
• What causes currency exchange rates to fluctuate?
• What is Dynamic Currency Conversion?

What is Currency Exchange?

When shopping overseas, a merchant may ask you if you would like to convert your credit card transaction from the local currency into U.S. dollars. This is called Dynamic Currency Conversion (DCC), and while it may sound like an enticing offer, this conversion is very expensive for the cardholder and should be avoided.

Generally, when an overseas merchant makes this offer, they will use a conversion rate that is far higher than the actual going rate, as high as 7 percent, and pocket the difference as a fee. They get away with it because many customers are not checking the math at point of sale to make sure the conversion was accurate.

The banks are all bleeding money due to record high credit card default rates.  Compounding their problems is the Credit CARD Act of 2009.  Once the bill takes effect in February, there will be restrictions on interest rate hikes for all credit card issuers, so between now and then, the banks are doing all that they can to shore up their books and this means ratcheting up interest rates.  It’s not fair to consumers, but there will be some correction to these practices once the law becomes active.  Unfortunately, there’s not much you can do.  If you have good credit, you can shop around for a card that has a lower interest rate, transfer or payoff your balance and then close your old account. Other than that your only option is to accept the new interest rate, even if it is only for the period of time it takes you to payoff and close out your account.

The foreign transaction fee (aka international transaction fee) is the fee charged to your credit card for making purchases overseas, and is generally between 2-3 percent of the amount of each purchase you make. For example, if you make $1,000 worth of purchases while traveling outside of the U.S. on a credit card that has a foreign transaction fee of 3 percent, you will be charged a $30 fee. This can add up to a lot overtime, so it may be worth applying for a credit card that does not have a foreign transaction fee before going on a long trip abroad, or if you travel frequently. The credit card issuer that offers the most credit cards with no foreign transaction fee is Capital One.

The credit card foreign transaction fee is generally the combination of a fee that your network (e.g. MasterCard, VISA) charges to handle the transaction between the overseas merchant and your credit card issuer, and a fee that your credit card issuer (e.g. Bank of America, Citi) charges on top of that.

Account set-up fees, program fees, internet access fees, and credit limit increase fees are uncommon but out there, so be careful. Most of the time, these fees are tied to the credit cards that are offered to people with bad or poor credit. Not every credit card offered to people with bad/poor credit includes these fees, but it is something you should be aware of.

• Account Set-Up fee: This is an excuse for the credit card company to charge you another fee. Usually this is a one-time fee assessed when you are approved for a credit card.
• Program fee: Another opportunity for the credit card company to charge you a fee. Usually this is a one-time fee assessed when you are approved for a credit card.
• Internet Access fee: Usually this is a one-time fee assessed when you sign up to access your credit card account over the internet.
• Credit Limit Increase Fee: The credit card company that assessed this fee explained it in the terms and conditions as follows: “Each time your Account is eligible and approved for an unsecured credit limit increase, a Credit Limit Increase Fee of $25 is imposed. This fee is automatically assessed upon approval of your credit limit increase”. Basically, they’re charging you to allow you to spend more money on their credit card. Wow!

A zero-percent Introductory APR on balance transfers sounds like a great deal, right? Unfortunately, there is often a fee associated with making a balance transfer from one card to another. The most common fee is 3 percent of the transferred balance.

You should interpret this percentage-based fee as an additional APR above your Introductory APR.

Payment allocation is the term used to describe how your credit card company uses your payments to pay down your debt. The Credit CARD Act, effective February 2010, has changed a lot of the rules regarding how your credit card company can distribute your payments across different APR balances. The new rules are aimed at protecting consumers from an unfair payment allocation system, but unfortunately these rules only apply to consumer credit cards, and not small business credit cards. Below you will find separate explanations of how payment allocation works for both types of credit cards.

Consumer Credit Cards:

If you don’t pay your credit card bill on time, or if you spend over your credit limit, generally your credit card company will hit you with a late fee or overlimit fee, respectively.

In most cases, you will be charged an overlimit fee if you are over your credit limit at any point during the billing cycle. That means that you will be charged an this fee even if you are back under your limit when your monthly statement arrives.

The Penalty (or Default) APR is the interest rate applied to a portion or your entire balance once your credit card is in default. The rules for when the Penalty APR applies are different for general consumer credit cards and small business credit cards, as small business credit cards were excluded from the new credit card law (Credit CARD Act). Below you will find separate explanations of how the Penalty APR works for both types of credit cards.

Consumer Credit Cards: