Downgrade fee is a blanket term used by merchants who are subject to higher surcharges as part of their credit card processing charges. In particular, downgrade fees are applied when instead of being charged the qualified rate a merchant is subject to a mid-qualified rate or a non-qualified rate. Downgrade fees are considered hidden charged because of non-disclosure when a retail account is activated. Downgrade fees range, but may end up costing merchants an extra 1% to 3% on top of the qualified rate fee. Reasons for a downgrade fee include the type of credit card used by client, the bank issuing the card, missing information and how the transaction is entered into the system. It is estimated that more than half of merchant accounts are charged downgrade fees when their accounts are set up under a tier rate model, the most common type of retail account. Before setting up a merchant account, retailers can negotiate the removal of downgrade fees. Read more to find out how to negotiate with credit card providers to remove these costly charges from your account.