NEW YORK (TheStreet) -- Using a credit card on vacation abroad is convenient and rewarding, often giving consumers cash back or airline miles.
But there's a hidden cost: as much as a 10% markup on all transactions. The little-known cost is due to two things: foreign-transaction fees and dynamic currency conversion fees.
A foreign-transaction fee is commonly assessed by credit-card companies when Americans make purchases outside the U.S. -- about 2% to 3% of the total. To keep costs down while traveling, it may be worth applying for a no-foreign-transaction-fee credit card before you go. Capital One (COF) offers the most number of these types of credit cards. http://www.cardhub.com/credit-cards/foreign-transaction-fee/Dynamic currency conversion, on the other hand, is a strategy that merchants use to make extra money on electronic transactions made by travelers. They offer to convert your transaction into your home currency but, in doing so, charge a fee as high as 7% of the purchase and pocket the difference. That can be easily avoided by simply insisting that your transactions are paid in the local currency. Another thing to consider is which credit cards are most widely accepted. Those tend to be on the Visa (V) and MasterCard (MA) networks. American Express (AXP) also has a global network, but acceptance varies based on the country. The more developed the country, the more American Express is on par with Visa and MasterCard. Discover (DFS) is the least useful card overseas as it's rarely accepted outside the U.S. Most European countries use chip-and-PIN technology for credit cards. Those are smart cards with embedded microchips that are authenticated automatically using a PIN. They're much more secure than the magnetic-stripe-style credit cards used in the U.S., so most merchants will want to see your passport for identification. Finally, to avoid unnecessary headaches on your trip, make sure to notify your credit-card company of your travel plans before you leave. The last thing you want is to be without a means of spending, and this will assure your company won't suspend your credit card due to suspicious charges made outside the country.
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