Chapter 3. What's in a credit card monthly billing statement?

 

Each month, you will receive a monthly billing statement on each credit card that you own, either on a paper or electronic version. The purpose of sending a monthly billing statement is to demand payment on your previous transactions of using a credit card to purchase goods and services.

It is very important to understand every section on your statement:

1. To make sure you are getting the best usage of your credit card
2. To uncover any errors or mistakes on your account

You would be surprised by how many people would only pay the 'requested minimum payment amount' without understanding the statement. Granted, financial institutions try their best to offer high quality and correct information to their consumers, but it is each person's responsibility to make sure his/her accounts is complete and accurate.  

 

How to

In this chapter, we will review every section that appears on a monthly billing statement. Prepare your own statement at hand and follow along. Keep in mind that statements might appear different, but they are all required to provide the information listed below. 

1. Summary of account activity

• • A summary section shows basic transactions on your account at a glance
    • Includes your payments, credits, purchases, balance transfers, cash advances, fees, interest charges, and amounts past due
    • Shows your new balance, available credit*, and the last day of the billing period
      • Payments of charges after the last day of the billing period will show up on your next month's bill

Notice that the cut-off date of activities and due date of your payment remain constant for each billing period. You should have (a) Minimum 21 days in payment cycle and (b) Same due date each month. This will help you in setting up your budget for each month to know when to expect your bills to arrive.

*Available credit is your credit limit minus the amount you owe.

2. Payment information

• • Payment information includes your total new balance, minimum payment amount** and a due date of your payment
  • A payment generally is considered as on time if received by 5 p.m. on a due date
    • If you mail your payment and your due date is on a weekend or holiday, your payment is considered on time if it arrives by 5 p.m. on the next business day
      • For example, if your bill is due on July 4th when the credit card company does not receive mail, your payment will be on time if it arrives by mail by 5 p.m. on July 5th

**The minimum payment amount is the least amount you should pay.

3. Late payment warning

• • Late payment warning informs you of any additional fees and a higher interest rate that may be charged if your payment is late
    • A late fee is $25-$35 unless the user is late multiple times in a 6 months consecutive period

4. Minimum payment warning

• • Includes an estimate of how long it can take to pay off your credit card balance if you make only the minimum payment each month
  • Includes an estimate of how much you likely will pay, including interest, in order to pay off your bill in three years
    • Assuming you have no additional charges
  • This is extremely valuable information if you are making a plan to conquer debts and pay down the credit card to a zero balance
  • You should never charge on your credit card more than your ability to pay in full, on time the following month

5. Notice for changes of on your interest rates

• • If you go over your credit limit or pay your bill late, you trigger the penalty rate
  • Then, your credit card company may notify that your rates will be increasing
    • The credit card company must tell you at least 45 days before your rates change.

6. Other changes of your account terms

• • If your credit card company is going to raise interest rates and/or fees or make other significant changes to your account, it must notify you at least 45 days before the changes take effect

7. Transactions

• • A list of transactions show all transactions that have occurred since your last statement including:
    • Purchases
    • Payments
    • Credits
    • Cash advances
    • Balance transfers
  • Some credit card companies group them by type of transaction or by date of a transaction
  • Some companies list them by a user if there are different users on the account
  • Review the list carefully to make sure that you recognize all of the transactions
  • This is the section of your statement where you can check for unauthorized transactions or other problems

8. Fees and interest charges

• • Credit card companies must list fees and interest charges separately on your monthly bill
  • Interest charges must be listed by type of transaction
    • For example, you may be charged a different interest rate for purchases than for cash advances

9. Year‐to‐date totals

• • Year-to-date totals mean the total that you have paid in fees and interest charges for the current year
  • You can avoid some fees, such as over‐the‐limit fees, by managing how much you charge and by paying on time

10. Interest charge calculation

• • A billing statement also shows a summary of interest rates on the different types of transactions, account balances, the amount of each, and the interest charged for each type of transaction

 

Practice

Yes, there was a lot of information to go through! Now you are able to fully understand the content of your credit card monthly billing statement.

Look at the fine print of your bill and think of other important items that could be added to this list! Think about paying it forward and teach a friend or a family member what to pay attention to, as they review their credit card monthly billing statements. 

 

Congratulations!  You can move on to Chapter 4. What makes up the FICO Score?

To review the full module on Credit cards, click here.