How to Read Your Credit Card Statement

Having trouble understanding what your credit card statement means? Once you understand what those monthly credit card statements actually mean, it is much easier to make sense of the whole process and get those bills paid.

So let’s look at your credit card statement and the terms.

APR: Annual Percentage Interest is your annual fee you pay for borrowing money. This can be as low as 0 % (on an introductory rate) and as high as 25 %. In most cases, the lower the interest fee, the better deal you are on.

Finance Charge: this is the interest you are paying on the unpaid balance of your account. Because most credit card issuers use APR, the finance charge is often calculated with a daily periodic rate times the days in a month.

For example, if you owe $ 1,000 with 12 % annual interest, then the daily interest rate would be .03288 % (12 % / 365 days). This would come to a monthly interest fee balance of $10.19 (1000 x .03288 % x 31 days).

Minimum Balance Due: this is the amount you owe for the month. The minimum balance is usually only 2-3 % of the total amount you owe. For example, if you owe $1,000, then your minimum payment would be $20-$30 for that month. Of course, you are allowed to pay as much of the balance off as you can. In fact, it is encouraged.

New Balance: this is the unpaid amount, or the amount you still owe the credit card company. If this number is huge, don’t fret! Just take it one payment at a time and try to pay more than the minimum amount to avoid high interest charges.

Late Fee: this is a fee you incur if you don’t make the minimum monthly payment on time. The late fee differs from each issuing credit card company.

Annual Fee: consider this your yearly membership to your credit card. While some credit cards don’t charge an annual fee, others with better rewards and features often do. This could be anywhere from $15 to $150 dollars per year.

Over-Limit Fee: If you overspend on your credit limit, then you will incur this fee. For example, if you have $1,000 credit card limit but have $1050 still owed, you will be charged. Again, this fee differs from credit card companies.

Grace Period: this is the amount of time you have to pay the new purchase before the credit card issuer will start charging you interest. The grace period is usually 20-25 days.

Credit Card Limits: this is your credit card limit. The most common credit card limits are $ 1,000, $5,000, $10,000 or $20,000 depending on your credit card level.

Understanding how to read your credit card statement is the first step in getting the balance back to zero and your financial life back on track.

Write to Julie Williams at julie@creditdonkey.com