Understand your creditors statement

Take a look at your monthly credit card statement, and you will see that it contains a great deal of important information. If you compare statements from several different companies, you will notice that although they may look different, there are many common elements. So what is really important to look at when you get your statement each month? There are several key pieces of information both on the front and the back of the statement that will help you better understand your credit card account.

Annual Percentage Rate (APR):

The APR is the amount of interest you will pay on an annual basis. The APR is an important factor in calculating your monthly finance charges. The higher this rate, the more money it will cost you to use this credit. On most credit card statements, the APR is presented as both the APR and either a Daily Periodic Rate or a Monthly Periodic Rate.

Minimum Payment Due:

The minimum payment is the amount you must pay on credit card accounts each billing cycle to remain in good standing with your creditor. The minimum payment is usually determined by taking a percentage of your new balance. Each bank or credit card issuer determines your monthly payment by using a formula that is specific to their company. One bank may determine your monthly payment amount by using a formula of 2% of the outstanding balance, while another may be 2.5% of the outstanding balance. You must make at least the minimum payment by the due date to protect your credit reputation. Late payments are recorded on your credit report. As a rule, you should try to pay as much as you can to avoid increased finance charges. At the very least, you should pay the minimum payment on your credit accounts before the due date. If your goal is to pay off the bill and reduce unnecessary fees, pay more than the minimum amount each month.

New Balance:

The new balance on a credit card account is the unpaid amount or what you still owe. It is usually determined by:

1. Starting with the balance from the previous month
2. Subtracting any payments or credits
3. Adding new charges, miscellaneous fees and finance charges for the current billing cycle

A grace period is the number of days you have before a credit card issuer starts charging you interest on your new purchase. This is usually 20-25 days. Read the fine print on your monthly statement to determine the grace period offered by your credit card company.

Due Dates:

On most credit cards, the grace period or "free ride" only exists when the balance from the previous month has been paid in full. So unless you have paid your credit card in full the previous month, you do not have a grace period. When you pay monthly bills in full, there are no interest charges on new purchases you make during the billing cycle. But if the previous balance was not paid in full, interest charges are assessed on the previous balance and on any new charges you make before the next bill is due. As soon as you make a new charge, interest begins to accrue on that purchase. When you get a cash advance using a credit card, there is NO grace period, even when the previous balance was paid in full. Pay your bill in full each month to take advantage of the grace period. If you cannot pay your bill in full each month, pay early in the billing cycle to reduce the average daily balance used to calculate your interest charge.

Credit Card Limits (Credit Line):

This is the maximum debt allowed on a credit card or other revolving credit accounts. Your maximum credit limit and your available credit limit (the total minus current charges) are stated on each credit card billing statement. A revolving credit account is one in which you have the choice of paying the entire amount due during a monthly billing cycle or spreading repayment over several months by making at least the required minimum payment. You can continue to make charges on the account as long as you pay, at least, the minimum amount due each month and do not exceed your credit limit. Think of a revolving credit account as a continuous debt treadmill. If you never pay the bill in full you can never stop to rest; you have to keep running. If your maximum credit limit is too high, ask the card issuer to lower it to a level that makes you more comfortable. If the issuer increases the limit without asking you, tell them to lower it. High credit lines could keep you from getting a loan. Although you may have no intention of charging up to the maximum credit limit, potential lenders might see that as a negative when evaluating loan applications. The lenders may view the credit as available and determine that you might resort to using the credit.