Credit card statements can be confusing. There are minimum payments, statement balances, and interest rates that show up on a monthly bill, among other things. The banks mail some statements to their customers. They deliver others digitally if the cardholder has opted in to receive electronic statements. There are due dates to worry about and late fees if those due dates are missed. All of this might seem confusing, but armed with a bit of knowledge, anyone can become a pro at reading what shows up on a credit card statement.
Merchant Charges –
Each card statement comes with a list of charges. Each of these charges should have come from a merchant that the cardholder did business with. Every transaction will have a date, a merchant name, and an amount. The date will not necessarily correspond with the date of the actual charge. Some charges show as pending for a day or two. The merchant will be the official business name and will sometimes differ with the name that a cardholder remembers. The price should correspond to the amount actually charged.
The best way to check over the credit card statement is to set up online account access. This process is usually quite simple, and most banks will prompt new cardholders to set up an online account if they verify receipt of a card online. Generally, all that will be needed at this point would be a user name and password. The online information should keep up with the charges made during the current billing cycle. Most banks will also provide access to the statements from previous months. Logging into the account periodically will allow cardholders to access the charges that have posted to the account to see if there are any discrepancies.
Keep Receipts –
It’s important to keep receipts from every card purchase. Those who actually keep their receipts are able to check them against the charges showing up on the current billing statement. When there are purchases that do not agree with the receipts, there is the possibility of disputing the charges. Laws that govern credit cards do a good job of protecting consumers in this regard, and banks are quite vigilant because it is their money on the line.
Interest Rates –
A statement will generally include the interest rate that a consumer will have applied to any outstanding balance. This amount can range from 0% for special introductory terms, or balance transfer offers on up to more than 20%. Most cards will have rates that are very penal because credit cards are unsecured debt. In other words, the bank will not come and repossess the meal a cardholder purchased at McDonald’s. Loans like home mortgages and car loans are secured by the asset, and they come with lower interest rates as a result.
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Those who have an outstanding balance will need to pay close attention to the rate as they will increase the cost of any goods or services purchased based upon the rate their cards charge. It is important to remember that there is a grace period after the close of the previous month’s statement. As long as the bill is paid in full by that date, no interest will accrue in the account. Effectively, the consumer will have an interest-free loan in that instance.
Payment Due Date –
Another important number that will show up on a billing statement is the amount due. There are two numbers, and they might be the same. The first is the minimum payment due. This is the amount a cardholder would have to pay to avoid being turned over to collections and seeing a negative hit to his credit score. The second number will be the total amount owed as of the close of the previous statement period.
The banks are now required to inform consumers as to how long it would take to pay off the current bill when paying only the minimum. Some larger bills would take 20 years or more to pay off when only the minimum gets applied. Therefore, it’s a good idea to keep the amount owed to a minimum. By paying attention to these important numbers and the transactions that have gone through, it’s possible to understand what is on a credit card statement.
How Credit Card Bills Are Calculated –
Each month, millions of people receive a paper bill in the mail from their credit card companies, or they visit the company’s website to get their bills electronically. Even though they submit a payment, they do not necessarily know what all of the fees and sums on the bill mean.
Let’s take a closer look at what’s on a credit card statement:
Current Charges or Transactions
This is a list of all the transactions that have occurred since your last statement (purchases, payments, credits, cash advances, and balance transfers). Some credit card companies group them by the type of transaction. While others list them by the date of the transaction or by the user if there are different users on the same account.
Many parents of teens are happy that they can scour the bill for current charges. By doing so, they can find out if their kids are using the money to buy learning materials for college or if they booked a spring break trip for themselves and all of their friends on the card. Reviewing the current charges is also a way to save money. People can see what they have spent money on this month and decide to cut frivolous expenses out of their spending plans in the future.
This area is for the charges or transactions that were not paid off in the past. These charges still remain and they need to be dealt with. Credit card companies must list the fees and interest charges separately on your monthly statement. Interest charges must be listed by type of transaction. For example, you may be charged a different interest rate for purchases than for cash advances.
For people who are struggling with credit card debt, this section may be the most expensive one of the entire bill. Charges can stay on credit cards for years or decades to come if you don’t pay your bill in full every single month. Some individuals may get discouraged by this section because it makes it seem like getting out of debt is totally impossible and will never happen. If you have this feeling, then it’s time to get some help. Speak to a certified credit counselor at a non-profit credit counseling agency. The call is completely free and 100% confidential. They can break it all down for you and let you know about your debt relief options and what to do next.
Virtually all credit cards come with interest rates. Some may have a special introductory rate of 0%, but that will only last a short while (a few months if you’re lucky) and then the true interest rate will start, and you’ll be charged accordingly. The interest is a percentage of the total debt that is added onto the bill each and every month. People also tend to spend a significant portion of their money on the interest rate charges.
NOTE: The higher the interest rate, the worse the credit card is because it carries a heavy risk of landing you in serious debt if it’s not paid off in full every month!
Depending upon the amount of debt that individuals have, it might be years for the majority of their payment to start going towards the principal amount. Individuals who are struggling with credit card debt may want to call a credit counseling agency to see if they can help lower interest rates on their credit cards.
Some credit cards charge an exorbitant amount of fees. These fees might come on a monthly basis, or users may have to pay them each year. They could also come with different types of transactions, so that means with every purchase. Finding credit cards without any fees is a possibility, but you’ll need a great to excellent credit score to be considered for one of those. Therefore, when individuals are starting to look into different credit cards, they should find ones that will not charge them an annual fee just for having the piece of plastic. The better your credit score is, the better deals and offers you will receive on some credit cards.
The fees that you may see could include annual membership fee, late fees, over-the-limit fees, balance transfer fees, and cash advance fees. You want a credit card that has the least amount of fees at the lowest amount possible. Fees are another huge factor when it comes to having some debt problems.
This section will include some previous payments that were made on the account. It may only show the most recent last payment or it could show a few last payments. This section will most likely also include the total balance due, the minimum amount due, and the date your payment is due. A payment is usually considered to be on time if it’s received by 4 pm on the day that it’s due. However, every lender is different, so make sure you know exactly when your lender considers a payment to be on-time. There may also be a late payment warning section close by. This section shows additional fees/penalties and the higher interest rate that may be charged if your payment is late.
Some people make small payments on their credit cards throughout the month. For example, they might want to try to make a payment before the interest charges hit for the month so they can reduce the amount on which they need to pay interest. These payments should be reflected on the bill. If they are not, people should call to find out if they were not processed or if they were somehow missed.
Check out these 2 great examples with pictures to help you see where these sections are usually located on a credit card statement: https://www.wellsfargo.com/credit-cards/statement/ and https://www.mycreditunion.gov/life-events/checking-credit-cards/credit-cards/statement
Does It Matter How Your Credit Card Company Calculates Finance Charges? The answer is YES!!!
Take a look at this example of a credit card account and see if it would matter to you:
APR – 19.8% (standard APR for most credit cards)
The account started out with a zero balance the first month. The account holder then charged $1,000 and made the minimum payment. The next month, the account holder charged another $1,000 and then paid off the balance due.
Here’s how much you’ll pay in interest charges if your credit card company uses:
Average Daily Balance Method, including new purchases: $33
Average Daily Balance Method, excluding new purchases: $16.50
Two-Cycle Billing, including new purchases: $49.05
Two-Cycle Billing, excluding new purchases: $32.80
As you can see, the calculation method can cause the balance to vary widely, and since your finance charges are based upon your balance, you can end up paying a lot more for your credit because the balance calculation method takes more money out of your pocket.
Just what do those balance calculation method terms mean?
Average Daily Balance: The company averages your daily balance. Let’s say you charged $100 on the first day of September and $200 on the 16th. Your average daily balance would be $150. That number times roughly 1/12th your annual percentage rate (APR) equals your monthly finance charge. Interest may be calculated on a daily or monthly basis. Most credit card companies take into account any new purchases made throughout the month.
Daily Balance: The credit card company calculates the actual balance you carried each day of the billing cycle and multiplies it by roughly 1/365th of your APR and adds it together. Not many credit card companies use this calculation method.
Two-Cycle Balance: With the two-cycle method, the average daily balance is calculated from two billing cycles rather than one and finance charges are typically higher than the average daily balance method. This method, in effect, wipes out the grace period for customers who carry a balance. If the bill is not paid in full at the first billing, interest becomes retroactive back to the purchase date. Most credit card issuers use the single-cycle average daily balance method to calculate finance charges.
Previous Balance: Your bill will show the beginning balance and ending balance for your account. The finance charge is based on the outstanding balance at the beginning of the billing cycle.
Credit card bills contain an array of figures on them and can be very confusing at times. Individuals should make sure that they know what the different amounts represent so that they can have a greater sense of their current financial situation and keep themselves out of financial trouble.
If you don’t know which balance calculation method your credit card company uses, then call the customer service department and find out. If you need additional help understanding your credit card statement, don’t hesitate to give us a call at 1-866-699-2227 and ask to speak to one of our certified credit counselors. They will be more than happy to help you!