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What you miss when you don’t read your credit card statement

By
Dan Rafter
  • Credit
  • 6 minute read

When was the last time you studied your credit card statement? Do you even know what’s listed on it, or do you simply open your statement, read what you owe and send in the minimum payment each month?

Unfortunately, consumers who don’t read their statement each month could cost themselves significant fees or trigger soaring interest rates. That’s why it’s important to not only read your statement each month but to understand what each section of it actually means.

John Heath, directing attorney with Salt Lake City’s Lexington Law, says that too many consumers pay too little attention to that monthly statement.

“People are busy, and the credit card statement can be a bit confusing and daunting,” Heath says. “There might also be a psychological component to it. People don’t like to see the damage they have done to themselves over the past month. We don’t like to look at what we’ve done.”

Fortunately, a credit card statement isn’t nearly as confusing as it appears. Here’s a quick guide to what your statement includes and what that information means.

Summary of Account Activity

Start reading your monthly statement by studying the section labeled “Summary of Account Activity.” This lists your card’s previous balance, the most recent payment you’ve made, the dollar amount of purchases you’ve made since your last billing statement, any balance transfers or cash advances you’ve made and any past-due payments. This section will also list any fees that your credit card issuer has charged you and the interest charged to your account since your last billing statement. 

This section also lists two important numbers: the balance on your credit card and the amount of credit available to you. This last figure is the difference between what you owe on your card and its credit limit.

“The ‘account summary’ section shows you the most important parts of the bill: how much you owe, when the payment is due and how much you are paying in interest fees,” says Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. “Circle or highlight the due date. Add the date to your calendar, and write a check or enter an online payment as soon as you receive the bill to avoid late fees.”

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It’s important to pay on time, as late and missed payments can negatively affect your credit score.

Payment Information

Another must-read box on your credit-card statement? The “Payment Information” section. This section again lists your new card balance. But it also lists the minimum payment you need to make and your payment’s due date. 

This section spells out, too, what will happen if you make your payment late. Usually titled “Late Payment Warning,” this statement might say, for instance, that if you’re late to pay, your card issuer might charge you a $25 fee. The statement will also spell out what happens to your interest rate if you pay late. Your current interest rate might be 11 percent, but if you pay late, it might jump up to a much-higher 28 percent.

Thanks to the Credit CARD Act signed into law in 2009, every credit card statement must also include a “Minimum Payment Warning.” This warning, included in your statement’s “Payment Information” section, states how long it will take to pay off your current credit card balance if you make only the minimum monthly payment.

You might be surprised by how long it takes to pay off even a small balance if you only make the minimum payment. The Federal Trade Commission gives this example: Say you charge $1,500 using a credit card with an interest rate of 19 percent. If your minimum monthly payment on that balance is $60, and that’s all you pay each month, it will take you 106 monthly payments — or nearly nine years — to pay off that balance. The FTC notes, too, that you’ll pay more than $889 extra in interest during this time. And that’s assuming — rather unrealistically — that you won’t make any other charges with this card during this time.

“Consumers need to realize that the credit card companies set the minimum payment,” says Chelsea Barrish, housing and credit counselor with Clarifi, a consumer credit-counseling service based in Philadelphia. “They want you to pay as little as possible to pay down the balance. People always focus now on low interest rates. But if you are not paying down your balance because you are only making the minimum payment, who cares what your rate is? You’re still going to be paying too much interest.”

Notice of Changes to Your Interest Rates

The “Notice of Changes to Your Interest Rates” section explains how high your interest rate will rise should you trigger your card’s penalty rate. You might trigger this rate if you pay your bill late or charge an amount higher than your credit limit. Pay close attention not only to how high your rate could rise, but how long your credit card issuer will keep your rate at this elevated level. Some issuers might reserve the right to keep your account at the higher penalty rate indefinitely.

You might notice, too, a section of your statement labeled “Important Changes to Your Account Terms.” If your credit card issuer is going to, say, change your interest rate or increase your late-payment penalty, it must state so here. Your issuer must notify you at least 45 days before any of its changes go into effect.

Transactions

The “Transactions” section might be the most important part of your statement. This lists all the purchases, cash advances, balance transfers and other activity on your card since your last statement. Some credit card issuers list these transactions in chronological order. Others might group them by type of transaction. Make sure you study these transactions. If you see any purchases you don’t remember making, call your credit card company.

This section will also list any fees and interest charges that your account incurred since your last statement and your year-to-date totals of these items.

Interest Charge Calculation

Finally, check the “Interest Charge Calculation” section. This lists the interest rate you’ll pay for transactions, cash advances and balance transfers. This is particularly important, as many credit cards charge much higher interest rates for balance transfers and cash advances. You don’t want these higher rates to surprise you.

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