By: Guest blogger Mark
Understanding a credit card statement is important if a credit card is used regularly to spend money and budget is being followed. For someone who has been using a credit card for an extended period of time, reading the statement is old hat, but for someone who is new to using a credit card there are some features of the statement that need to be explained. Understanding the fine print, both on the front and back of the statement, is important to fully understanding the charges within the statement. The statement for each credit card company varies slightly but for the most part there are common elements in each of the statements. There are several key pieces of information that must be examined when each statement is attained that will help the individual better understand their account.
APR – On the front of the document the first piece of information that needs to be examined is the Annual Percentage Rate, or APR. This is the amount of interest that will be paid on an annual basis. The APR is an important factor in calculating the amount of money going into the credit card. The higher the rate, the more money it will cost in the long run to use this credit card. Interest rates of each credit card can be compared on a variety of websites available online.
Minimum payment – Another pivotal piece of information that must be looked at is the minimum payment due. This is the minimum amount of money that must be paid on the credit card during each billing cycle in order to remain in good standing with the credit company. This amount is typically determined as a percentage of the new balance. The minimum payment must be made by the due date in order to protect the individual’s credit reputations. Late payments have a negative effect on an individual’s over all credit score, which reflects poorly when trying to take out a loan for a house or other large item.
New Balance – The new balance on a credit card is the amount of money that is still unpaid or owed by the cardholder and will be a number present on the statement. This can be determined by starting with the remaining balance from the previous month and subtracting any payments that were made on the balance. To calculate the amount owed the new charges and miscellaneous fees accrued during the most recent billing period must be added to the previous amount.
Interest Paid – The finance charge is essentially the cost of doing business with the credit company. This is the money paid to the lender for using their credit. This finance charge is indicated on the each monthly statement and it is the interest that is paid on the unpaid balance of the account. The way in which this charge is determined varies with each credit company and the way in which it is determined affects the amount of money that the individual will be charged. The most commonly used calculation method is the average daily balance, which calculates the monthly finance charge based on the amount of debt on the account each day.
Fine print – The back of the credit card statement should not be ignored. There is a lot of fine print on the back of the statement and can present quite a headache. Although these paragraphs are not the most interesting read ever, there are many important details that can affect whether the individual is a successful credit card holder. One of the most important pieces of information that can be found on the back of the statement is the information about the Cash Advance Fee. This is a charge that the credit card company charges the individual when the card is used to take a cash loan from a bank. Generally there is an allowed amount of money that can be withdrawn using the card and the fee the credit company charges is a percentage of the loan amount. It is important to recognize this information on the back of the card in order to not break the fine printed rules of the credit company.
Understanding a credit card bill is the first step towards being a successful credit card holder. It is important to take the time to review the information on the statement and make sure that everything on the state is in line with the contract that was signed. It is also important to notice and verify any changes on the statement compared to the previous statements. An error can always occur and it is the responsibility of the cardholder to recognize these errors. Understanding finances is difficult but taking the time to learn a little about a credit card statement could save a lot of money in the long run.
Mark writes about finances at CreditCardCompare.com.au, an Australian website based just north of Sydney.