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Financial Education

Charge It Right

Keeping a Record of Your Credit Card

If you have a credit card, you will receive a monthly billing statement. Understanding the billing statement is important. The bill lists detailed activity from your account billing cycle.

The reverse side of your bill usually describes some of the basic terms of your credit card agreement, including how the interest is calculated and where to call with billing questions.

Here are some of the terms found on a credit card statement:

New Balance: Your previous balance, plus any purchases, cash advances and late fees, minus any payments and credits. If you pay your credit card bill in full each month, the new balance will be equal to your new purchases and cash advances.

Credit Line: The maximum dollar amount you can borrow on the card at one time.

Minimum Payment Due: The minimum dollar amount that must be paid each month. This is usually two to three percent of the amount owed and is often based on the balance at the billing date.

Credit Available: This is the amount of credit remaining on your card after your balance and your current charges are subtracted from your total credit line.

Payment Due Date: The date your payment must be received by the credit card issuer -- not the date it is postmarked.

Previous Balance: This is the amount you owed at the end of the previous billing period. Any payments, credits to your account or new purchases are not included.

Finance Charge: This is the cost of credit. It includes interest, service charges and transaction fees. This charge is calculated on your balance using different methods.

Let's walk through an example of a finance charge calculation.

Assume:

  Your billing cycle is the same as the calendar month

  On April 1, you got a cash advance of $180 and were charged a $20 fee. Interest started accruing immediately.

   At the beginning of May, you receive your April billing statement. Your average daily balance for the month of April is $200 since you made no additional charges or payments.

The finance charge is calculated using a periodic rate. The periodic rate is the interest rate or cost of credit in relation to a specific period of time.

Let's assume the annual percentage rate or APR for your credit card is 18%. This means your daily periodic rate is 0.0493% or 18% divided by 365 days.

  $200.00 (Average Daily Balance)
x  0.0493% (Daily Periodic Rate)
= $0.10 per day (for each day you have the $200 balance)

$0.10 x 30 days = $3 (finance charge)

You should always keep your credit card receipts to compare them with your monthly statements. Be sure to check your monthly statement for mistakes.

If you find a discrepancy, take steps to resolve it right away. To be fully protected, you must report a discrepancy to your credit card in writing within 60 days from the day the bill was sent to you.

Now let's look at using a credit card responsibly so you don't get into trouble.