Editorial Policy

3 pitfalls to using your credit card overseas

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By Eva Norlyk Smith, Ph.D.
April 27, 2011

There are a number of potential pitfalls that can occur when you travel abroad — and they can cause serious headaches if you&#039re not aware of them.

Here are the three most common credit card pitfalls that Americans come across when traveling overseas — and how to avoid them.

Pitfall # 1: The unusable credit card
Credit cards are ubiquitous all over the world these days, but not all countries use the same type of credit card — causing travelers serious problems when they travel overseas.

Credit cards in most European countries, as well as Canada, China, Japan, India, Mexico and Brazil, are equipped with chip-and-PIN technology, which is a more secure form of technology that uses a special EMV chip. While most overseas vendors are currently able to process U.S. magnetic stripe credit cards, travelers are increasingly reporting problems getting their credit cards accepted in countries where chip-and-PIN credit cards are the standard.

“There are a lot of people who don&#039t have any issues, but it can be quite a problem,” says Ed Perkins, a contributing editor at SmarterTravel.com. “You can get really stuck if you don&#039t have the right card.”

Perkins tells the story of a U.S. couple traveling in Denmark who wanted to buy a train ticket late at night at a small railroad station in the countryside. The ticket machine didn&#039t take their U.S. credit cards, nor the Danish Kroner they were carrying. The couple was completely stuck, until they finally found a Danish man who was willing to put the tickets on his debit card in exchange for cash.

How to avoid this pitfall: Some U.S. credit card issuers, including Chase and Wells Fargo, are experimenting with credit cards that feature chip-and-PIN technology. However, Perkins expects it to take at least another year before these cards become widely available. In the meantime, he recommends bringing backup funds on a prepaid traveling card that features chip-and-PIN technology, such as the Cash Passport from Travelex. The exchange rate is not very good, but travelers will be happy they took the precaution when they find that they need to buy gas late at night from an unmanned pump that only takes chip-and-PIN cards.

Pitfall #2: The frozen credit card
If you&#039ve spent most of your life in Wichita, Kansas, and you suddenly charge your credit card while in Beijing, China, your card issuer will want to know why you're not in Kansas anymore.

Credit card issuers have extensive fraud protection systems designed to detect unusual charges or spending patterns. Unusual charges will trigger a fraud alert and a call from the card issuer&#039s fraud department. If you&#039re not there to pick up the call (which you won&#039t be if you&#039re traveling), your credit card could get frozen. Few things are less fun than suddenly being unable to pay your hotel or restaurant bills because your credit card account has been put on a fraud alert.

“You could find yourself without money for days, until you get the problem sorted out,” warns Brian Kingshott, co-author of “Safe Travel Overseas.” “So it&#039s important to call card issuers before you leave, and tell them which countries you&#039ll be using your credit cards in.”

How to avoid this pitfall: In addition to alerting credit card issuers of your travel plans, Kingshott recommends that you ask for an international number to call should you run into problems while traveling.

“Many people don&#039t realize that they have to get the international contact information for their card issuers before leaving the U.S.,” says Kingshott. “The 800-number on the card won&#039t work when you&#039re traveling. Plus, if the card is stolen, you won&#039t even have that number!”

Pitfall #3: The expensive credit card
When using credit cards overseas, there are a lot of extra fees and charges that can quickly run up. The three most common include:

1. Foreign transaction fees. Most card issuers charge a foreign transaction fee on overseas purchases. Foreign transaction fees average around 3 percent of the total purchase.

How to avoid this pitfall: Bring a credit card that doesn&#039t charge foreign transaction fees. Capital One credit cards come without foreign transaction fees, and other card issuers are increasingly waiving the fee on some of their premium rewards credit cards.

2. ATM fees. With the U.S. dollar at almost historic lows, ATM fees in the local currency of the country you&#039re visiting can be expensive. This is particularly true in countries such as Germany, where credit cards are not a commonly accepted form of payment. There, travelers are forced to utilize cash machines to get paper money.

How to avoid this pitfall: Find out what the ATM fee is in U.S. dollars so that you know the true cost of each withdrawal. If security allows, withdraw larger sums instead of many small amounts. Also, be sure to use a debit card to withdraw money. Using a credit card to withdraw money from an ATM will be deemed a “cash advance” and will accrue interest to the tune of 22.99 percent or higher.

3. Dynamic Currency Conversion (DCC). Some European merchants convert purchases to U.S. dollars before charging them to credit cards. It may seem like a helpful service; but unfortunately, the dollar price is usually based on an inflated conversion rate of 3 percent or more above the current conversion rate. Add to that the foreign transaction fee, and you could end up paying a 6 percent surcharge on purchases.

How to avoid this pitfall: You have the right to refuse a DCC. If the purchase receipt only shows a dollar amount, ask for the purchase to be rung up and charged in local currency. Keep all receipts should you later need to dispute an inflated charge.