Reading Your Credit Card Statement
Credit cards are a divisive topic within the personal finance community. Some abhor their existence, and some use only credit cards for every transaction possible to take advantage of certain benefits. Personally, I believe that credit cards are your friend, but only if you have the ability to show some financial discipline.
Credit card companies love customers who lack financial discipline and associate credit cards with free money. As a result, the average credit balance in the United States is just under $6,200! Interest charges from credit cards is the primary source of income for the largest credit card companies, with the seven largest companies making a combined $46 billion from interest alone!
I’m willing to bet that most of us aren’t perfect (except you — you’re perfect 🙂), and have maybe had to pay some interest on their credit card if they paid a day late. It’s not the end of the world to make this mistake, but credit card companies continually hope that customers misread their statements and don’t pay on time. Don’t be one of those people! In order to minimize the fees that go to these companies, let’s take a look at a real credit card statement and break down what you need to know.
This is a Capital One statement, but the terminology is essentially the same across all companies. Your payment due date is simply when your payment is due. On your due date, your credit card company will give you the choice of paying your current balance, statement balance, minimum payment, or your own custom amount.
Your statement balance (also known as new balance) is the total amount that you need to pay in order to not pay any interest or late fees.
Your minimum payment due in this statement is $25. This is the amount you need to pay in order to avoid being charged a late fee, but you will be responsible for paying interest on the unpaid portion of the statement balance. This is determined by your APR.
Your current balance is the total of all charges currently on your account. This includes all charges from your statement balance as well as any charges made after the statement/billing cycle.
In order to avoid any fees or interest, you only have to pay the statement balance ($357.94) on the due date (August 2nd). You will not be charged a late fee or interest for any charges made after your statement cycle (June 6th — July 5th) closes.
This account summary shows how your statement balance was calculated. Firstly, above the Account Summary is your statement/billing cycle. In this statement, the statement cycle is June 6th to July 5th. All the charges you made between these dates are the charges that are due on the due date, August 2nd. If you bought some pizza on July 7th, payment for that pizza wouldn’t be due until the next statement date, which would be around September 2nd.
Your available credit is the amount of credit you have remaining on your account. In order to be as financially responsible as possible, it’s best to never use more than 30% of your credit limit. That 30% represents your credit utilization ratio. Credit bureaus like, TransUnion, Experian, and Equifax use your credit utilization ratio in order to give you a credit score. Read more about credit scores and financial health here.
Your annual percentage rate (APR) is the interest rate that you have to pay for any money still owed to the credit card companies. For example, if the statement balance is $100 and is due on August 2nd, and you only pay $90. You will be charged 19.49% on the remaining $10. The longer you don’t pay the unpaid balance, the larger the likelihood that your APR will increase.
A cash advance is a short term loan from your credit card company when you are in a situation that requires paper money. Let’s say you’re at a bar and order a round for you and your friends. The bartender tells you after they bring you your drinks that they only accept cash. You slowly put your new shiny credit card away, but then remember that your card allows you to do a cash advance. You go to an ATM and withdraw money like you would with an debit card, except with one large caveat — it’s very expensive. For this Capital One card, you are borrowing cash from Capital One at a 22.99% interest rate! That’s way too much. Generally, it’s not a good idea to do a cash advance, and should be used only as a last resort. In this case, just ask one of your friends to pay for the round and save yourself from a 22.99% interest rate.
Final Thoughts
Credit cards aren’t for everyone, but with the right mentality and a sprinkle of financial discipline and impulse control, you can reap the benefits of credit card without being worried about mass amounts of credit card debit. Credit card companies don’t like responsible users because they can’t make money off them. Aim to be that person, and never ever buy anything with a credit card that you can’t buy with cash.
This is a story from Runway Finance, a blog that explains financial concepts from a practical, approachable, and helpful lens. Thanks for reading!
