In the following article I will Help to Understand Your Credit Card Statement. As a credit card holder, you will receive a bill on your account every month. The bill will be sent to you by the credit card company whether or not you make a purchase each month.
It’s important then that you read and understand all the figures and information stated on both the front and back pages in order to avoid fees and charges that can add to the cost of owning the credit card.
The bill is stating what you’re paying for, and if you don’t understand the charges then you can easily slip into credit card debt by not managing your account properly.
Always review your monthly statement to ensure that the charges listed are correct, that no other finance charges or late fees have been included if you know you paid on time and that you know what the company is charging you in terms of interest rate. If not you could be paying more than necessary and hurting your financial wellbeing.
Account summary
At the top of the front page is normally your account summary. This shows your previous balance from the prior month, the total amount of purchases you made during the current month, cash advances you have withdrawn from your account if any and payments made during the month. Finance charges will also be displayed as well as credits you have received.
With your previous month’s balance taken into account, the new charges such as your purchases, cash advances and finance charges will then be added and the payments made subtracted. This will now be your new balance or the amount you currently owe to the credit card company.
Minimum payment due
This portion displays your total new balance and provides a minimum payment amount that you are required to pay each month to maintain your good credit standing. The amount is calculated using a percentage of your new balance. Each company has its own formula for doing this so pay attention to how the minimum will be determined before acquiring a credit card.
Paying at least the minimum amount should be done on or before the due date to avoid the additional charge of a late payment fee. However, you should understand that although you can pay the minimum amount due, you can always pay more than what is required or pay the full balance.
If you wish to avoid other fees and keep debt from accruing then you must pay more than the minimum every month. If you pay off, say, half of your balance, you will lessen your debt and save money in the long run.
New activity
This part will show every purchase you made during the month and cash advances withdrawn from your account. It specifies the date of your purchases, the name of the store where you made the purchase as well as the amount.
Do review this carefully to be sure that the purchases were really yours. Sometimes, mistakes do happen in the processing and identity theft is a possibility as well. If this happens, report the error right away to the company via its customer service.
Finance charges
Generally, a finance charge is what you pay a lender for using credit. When using a credit card, it’s the interest you pay on the unpaid balance that accounts for the bulk of the finance charges. The most commonly used method in determining the monthly finance charge on a credit card statement is the average daily balance.
Your credit card bill should provide a breakdown of the finance charges. This should include the interest rate the company is charging and the monetary amount of interest. What is normally stated are the daily period rate or the interest paid daily, monthly periodic rate and the annual percentage rate (APR) or the interest you pay on a yearly basis.
The APR is vital in calculating your monthly finance charges. The higher it is, the higher the cost of using the credit card. If you feel that the annual interest rate is higher than what you should be paying, you can always inquire about it with your credit card provider by calling its customer service.
Credit limit
This refers to the maximum amount that you can borrow on a credit card account. This is stated on your bill together with the available credit limit or the maximum credit limit less your current charges.
A credit account is usually a revolving one which allows you to either pay the full amount due during a monthly billing cycle or spreading the repayment for several months by paying only the minimum amount due. So long as you do not go beyond your credit limit, you can continue to make purchases and charge them on your credit card.
If you think your credit limit is too high, you can ask the company to lower it. You can always request to lower the level even if the credit card issuer increases your limit. Take note that high credit lines may prevent you from getting a loan as lenders might consider it a negative on your part when reviewing loan applications.
Credit card fees
One of the most common fees is the late fee. This is the amount you pay the company when you don’t pay at least your monthly minimum on time or when your monthly payment does not reach the issuer in time for the due date. You must know that late payments are recorded on your credit report and reflect very poorly on it.
The annual fee is the yearly membership fee you are required to pay to have a credit card. The fee depends on the type of card you own and is set by the individual providers. Cards with extra rewards, such as those that enable you to earn frequent flyer miles, may charge a higher annual fee compared to a standard credit card.
Pay attention to any other fees that show up on your card and if you have questions contact your provider.
Grace period
This is the number of days, normally from 20 to 25, you have before you are charged interest on your new purchases. Most credit card companies provide a grace period when you pay the prior month’s balance in full. When a monthly balance is paid in full, no interest charges are applied on new purchases during the billing cycle.
But if not, interest charges are applied on the previous balance and on any new purchases made. Cash advances do not have a grace period and therefore will be subject immediately to interest charges even when you pay the previous balance in full.