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Credit card statements are the ultimate math-class word problem. Get one wrong and the bad mark will stay with you a while — on your credit report.
To make it even more challenging, nearly all credit cards have a slightly different set of requirements and a slightly different statement. So here’s a cheat sheet — in plain English — to help you sort through that next bill and save a little money in the process:
Purchases/new charges: This is where the statement should spell out what you purchased and how much you borrowed. It’s also the first thing you want to check.
A smart credit trick to remember is to save all charge receipts for the month and match them with the bill when it comes in. That way if you’re double billed or charged for something you didn’t buy, you can take action immediately. If you have a problem, quickly contact the credit card company by phone and follow up with a letter.
In addition, you want to look at what rates are applied to what charges. If you took out a cash advance, chances are you might pay that at a higher rate, which probably started the day you received the money. If you have a balance transfer at a special rate, you want to make sure that’s noted correctly on your statement.
Previous balance: This one is self-explanatory. It’s the outstanding blance owed last month. Check it for accuracy.
Payments and credits: Did you get credit for that return Dec. 26? Or for the last check you sent?
“Look to make sure they applied the last payment as they should have,” says Rus Halsey, director of operations for GreenPath Debt Solutions, a nonprofit credit counseling service based in Farmington Hills, Mich.
And if you sent in a check to pay off last month’s cash advance, did the company apply the credit correctly?
Cash advances: This will tell you how much you’ve borrowed at a cash-advance rate. Many cards charge a higher interest rate on a cash advance than on purchases. They may not offer a grace period. And some don’t automatically apply your repayment to the cash-advance debt. Many card issuers will apply payments to lower-rate balances first to maximize interest charges.
If you have to take a cash advance, find out the charges involved. Besides a high interest rate, you’ll likely pay a fee for the privilege of obtaining cash through your credit card.
APR: It stands for annual percentage rate, and should be an important number to anyone who doesn’t pay the balance off each month. The lower the rate, the less the cardholder will pay in interest.
Credit card companies can change the APR, even if the rate is “fixed,” which is one reason to check it when the bill comes in each month. Also look for change-in-terms notices. Banks only have to provide a 15-day heads-up before they apply a rate increase, and that’s only if the borrower didn’t trigger the penalty rate.
Finance charges: This is the amount of interest and fees charged for the month. Some cards will impose a minimum finance charge, but this only applies if you carry a balance. If you don’t pay off the card every monthl, you will pay the greater of the finance charge or the minimum finance charge.
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The company will use one of several formulas to calculate your finance charges. The average daily balance is the most common method. An average daily balance is determined by adding each day’s balance and then dividing that total by the number of days in a billing cycle.
You may have several different finance rates on one card — one for balance transfers, one for cash advances, etc.
Grace period: How long do you have to pay your bill in full before you are charged interest? If you carry a balance, you usually don’t have a grace period, and interest accrues immediately on new purchases. Cash advances and balance transfers may also lack grace periods. Check your credit card agreement for details.
Minimum payment: This is the lowest amount you can pay on your bill. It’s usually 2 percent to 2.5 percent of the balance, though some could be as high as 3 percent to 4 percent, says Halsey.
Due/Pay-by date: This is the date that your payment has to be recorded in the credit card company’s computer. Remember, it’s not the date your bill has to be postmarked, or even the date it arrives at the company’s office. The typical bill cycle is 29 to 31 days, and the payment is usually due 20 to 30 days from when the bill was printed, says Halsey.
Find out the requirements of your credit cards so that you know the rules of engagement. To play it safe, mail payments 10 days to two weeks before they are due. Since it already took the company a week to get the bill to you, it means that when the bill hits your mailbox, you have to pay it pronto.
Another option is to pay the bill online. You can make the payment immediately and avoid the postal system. Check with your bank to find out how long it takes for an electronic payment to be made and figure that into your payment schedule.
Credit limit: What’s the maximum the card allows you to borrow? For cash advances, the credit limit is a fraction of your overall borrowing cap for the account.
Credit card limits can change without notice, so verify the limit each month and before you make a large purchase.
Late fee: Remember when you were late to class and got slapped with detention? The average late fee charged on fixed-rate cards was $24 and $30 for variable-rate cards, according to the April 2009 Bankrate survey.
Over-the-limit fee: If you charge beyond your limit, or if late fees take you over the limit, you get hit with this charge each month until you bring your balance down under the credit limit. In April 2009, Bankrate found the average overlimit fee hit $21 for fixed-rate cards and $29 for variable-rate cards.
Name, address, account number: Self-explanatory, yes. But check them over to make sure all the information is right. Addresses and ZIP codes change, and it’s easy to transpose account numbers.
Miscellaneous fees: Sometimes there are fees on the bill for things consumers don’t recognize, like credit insurance, says Halsey.
“There have been some creditors who have had these on statements, and clients are not aware they are being charged for that,” he says.
If you see an item you don’t recognize, whether it’s a charge or a fee, call the company and ask for an explanation.