Reading a credit card statement

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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 every credit card has 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, says Mark Oleson, director of the Financial Counseling Clinic at Iowa State University.

His smart credit trick: Save all charge receipts for the month and match them with the bill when it comes in.

“I want to make sure that when I pay my bill, I’m paying the amount I charged,” Oleson says.

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: Does the number track with your last bill? And is it going down or are you just treading water?

Payments and credits: Did you get credit for that return on 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, group manager and counselor 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. 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.

If you have to take a cash advance, find out the rules for borrowing and repaying ahead of time. And track this balance until it’s paid off in full.

APR: It stands for annual percentage rate, and it’s the “industry standard” for measuring finance charges, says Halsey.

“I don’t have to get hung up on how it’s calculated daily, monthly or whatever. I look at the APR.”

But credit companies can change the APR, one reason to check it when the bill comes in each month. You want to make sure it’s “steady and consistent” with what the company has charged you in the past, he says.

Finance charges: If you carry a balance, and sometimes even if you don’t, finance charges are the penalty for using plastic. Some cards won’t levy finance charges as long as you pay off your bills in full each month. Others start charging interest from the moment you use the card.

The company will use one of several formulas to calculate your finance charges. Basically, they look at your average balance over the billing period and multiply it times one-twelfth of your annual percentage rate (APR), says Halsey.

But you may have several different finance rates on one card — one for balance transfers, one for cash advances, etc.

“Obviously, [you] want to make sure [the right totals] are in the right baskets,” says Oleson.

Grace period: How long can something stay on your bill before you are charged interest? While some cards have grace periods, others don’t. Find out if you have a grace period, whether it applies to purchases or cash advances and what the length of time is.

Minimum payment: The least 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: The date that your payment has to be recorded in the credit card company’s computer. Remember, 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 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, that means that when the bill hits your mailbox, you’ve got to pay it pronto.

Another option: Paying bills online.

“You can make the payment immediately and avoid the whole mailing system,” says Oleson.

Credit limit: What’s the maximum the card allows you to borrow?

“Something I’m concerned about is my credit limit,” says Oleson. “If I’m in a situation where I’ll be pushing that and the finance rates could bump me over, I’m going to call and request an increase.”

But the best long-term strategy for consumers and their credit ratings is to have lower limits, he says. “Because [you] have less potential debt.”

Late fee: Remember when you were late to class and got slapped with detention? With a credit card, the late penalty averages from $29 to 35 per month, Oleson says.

Over-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 to your allowed amount. Generally ranges from $29 to $35, says Oleson.

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.

Bottom line: 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.