Credit Basics
Understanding Your Credit Card Statement
Understanding your monthly credit card statement can help determine whether your spending is in line with your budget. By reading and understanding the fine print (especially the fine print) of your statement, you can prevent overspending and become more educated on how your credit card program works. Ultimately, you will begin the process of preparing yourself to keep out of credit card debt.
Look carefully at your credit card statement and you will discover a lot of information. But you may wonder, what are the most important areas that you should be familiarizing yourself with? Consolidated Credit Counseling Services has prepared this guide to assist you in recognizing the most crucial elements of your credit card statement and to ensure that you learn the skills of credit card management.
The Front of Your Credit Card Statement
Annual Percentage Rate (APR)
The APR is a measure of how much your debt is costing you. It is expressed as an annual rate or by the amount of interest you would pay annually. Remember, the APR is a major key to calculating your monthly finance charges -- the higher the APR, the more money that will come out of your pocket to use this card. On most credit card statements, the APR is presented as both the APR and either a Daily Periodic Rate or a Monthly Periodic Rate. The better your credit card management is, the lower the APR will be.
Minimum Payment Due
The minimum payment is the amount of money you must pay on your credit card each billing cycle to remain in good standing with your creditor. The minimum payment is usually determined by your monthly balance and it varies according to the formula each creditor uses. Minimum payments usually cover the finance charges and fees for the month plus a small amount of principle.
You must make at least the minimum payment by the due date. If you fail to make the minimum payment you will be putting your financial health in jeopardy. Creditors can charge outrageous late fees and raise your APR even if you are one day late. Also, payments made 30 days or later are recorded on your credit report, which is something that can affect your ability to get new credit. Strong credit reports are dependent on good credit card management.
Be aware though, if all you are paying is interest, making the minimum payment on your credit card bills just extends the life of your debt. You could compare your credit card debt to walking on a treadmill. You walk and walk but get no where closer to paying off your debt.
New Balance
The new balance on your credit card is the unpaid amount or what you still owe. It is usually determined by:
• Starting with the previous month's balance
• Subtracting any payments or credits
• Adding new charges, miscellaneous fees and finance charges for the current billing cycle
Be sure to look over your statement to make certain that the numbers are correct. This is a crucial part of credit card management. Here is a general example.
Finance Charges
Finance charges are also known as interest. In a nutshell, this is what you pay a lender for borrowing money from their credit card. The finance charge on your monthly credit card statement is the interest you pay on the balance of your account – that is why you should always try to keep a very low balance.
Grace Period
Your grace period is the number of days you have before you trigger a finance charge from your credit card company. Remember, study the fine print on your statement, because that is where you will find the grace period that the credit card company offers.
But keep in mind, on most credit cards the grace period only benefits those whose previous month’s balance has been paid in full.
So unless you have paid your credit card in full the previous month, you probably cannot take full advantage of the grace period. Those with good credit card management enjoy more benefits from the credit card companies. And regarding cash advances, there are no grace periods, even if the previous balance was paid in full.
Credit Card Fees
Credit card fees differ depending on the type of card that you use. Read the fine print on your monthly statement and the annual disclosure statement. Fees can jump up at the most inappropriate time, so be aware of them.
