Millions of people struggle with credit card debt. In many cases, part of the reason is that they do not understand how credit cards work. Credit cards can be a useful financial tool if used properly. If used incorrectly they can wreak havoc on your financial life. One of the key documents every credit cardholder needs to understand is their monthly statement. In this article, I’m going to teach you how to read your credit card statement.
What to look for
Let’s start by reviewing a sample credit card statement. Every month your credit card company should send you a statement that looks something like this. This is an old statement from a credit card I had several years ago.
There is a lot of information but specifically, we will be looking for the following information.
- Name of the financial institution who gave me the credit card. If you have multiple credit cards with the same bank you could sort them by the type of card, for example, this card is what’s called an “Aventura Visa Infinite” card.
- You’re also going to need to know the current balance on the card.
- The interest rate you pay on any outstanding balance.
- The minimum payment required.
- The due date of that minimum payment.
- Consequences of missing that minimum payment due date.
If we zoom in a little closer we can easily find that information.
The first thing you’ll likely notice is what’s usually called a “summary of account activity” or as my bank called it “your account at a glance”.
Let’s go through this line by line to understand what we are reading.
- Previous balance: Balance on the credit card last month.
- Payments: Total amount of payments you have made since the last statement
- Other credits: Total of any other transactions that reduce your credit card balance, for example returning an item and having it refunded on your card.
- Total credits= Payments + Other credits.
- Purchases: Total cost of all the things you purchased with your credit card since the last statement.
- Cash advances: Total of any cash you have borrowed from your credit card since the last statement.
- Interest: Any interest you have been charged from carrying a balance on your credit card.
- Fees: Any other fees charged to your account.
- Total charges= Purchases + Cash advances + Interest + Fees.
- New balance: This is how much you currently owe on your credit card. New balance= Previous balance + total charges — total credits.
Your account balance
In this example, my previous balance was $415.59. Then I added $2,129.93 in new purchases and made $2,260 worth of payments for a new balance of $285.52.
Your current or new balance is an important number because this will determine how much your minimum payment will be and how much interest you will be charged if you don’t pay off your balance in full.
If you look below “New balance” on the above sample statement, you will see the new minimum payment which in this case was $10. You will also see the date for which this minimum payment is due, which in this case was September 8th.
What’s not pictured here is any details of the consequences for missing that minimum payment. Typically there will be other fees and penalties applied if you miss your minimum payment due date. Missing your payment due date could also impact your credit. You mustn’t miss any payments.
The “summary of account activity” tells you most of the vital information on your card, but there is one major variable not included, the interest rate you must pay on any outstanding balances.
This should be located somewhere on your monthly statement. In this example, the interest rates were posted just to the right of the “Summary of account activity” as pictured here.
This section of the monthly statement displays other key information.
- Starting with the account number which in most cases is the same as your credit card number displayed on the front of your card.
- We also see a summary of my credit limit and available credit.
- Credit limit= the maximum amount I can borrow.
- Available credit= Credit limit- Current balance.
- Finally, the interest rates for regular purchases and cash advances.
- Regular purchases are just as it sounds. When you use your credit card to buy something, that is a regular purchase. In this example, I would have had to pay 19.9% on the balance from any regular purchases that I did not pay off within the grace period.
- Cash advances are when you use your credit card to get a cash loan. Interest rates on cash advances are typically higher than regular purchases and may not have a grace period.
It’s important that you carefully read your credit card account statement every month. It has vital information that you will need to manage your credit card.
The most important thing to note is your minimum payment and payment due date. If you do not make your full minimum payment or you are late making your payment, you will get hit with additional interest and/or other penalties.
If you have other questions about understanding credit cards or how to read your monthly statement, don’t hesitate to ask. If you have a question, you can be assured that many other people have the same question.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions