The Easy Guide to Reading your Credit Card Statement

21-Dec-2009

Let's face it, credit card statements are not the kind of thing anyone looks forward to receiving in the post.  Especially after a particularly expensive month it is tempting to slide them under the doormat/pop them in a drawer/feed them to the cat and pretend to have not seen them.  However, you should never, ever ignore them, because you are costing yourself serious amounts of money by doing this.

Once you know what to look for on your statements, they are actually fairly simple to read.  The trick is to open and pay each one as soon as it arrives (or as soon as you have the available cash), because this means that the credit card provider doesn't make any more money from you than absolutely necessary.  Here is a Plain English guide to the terms used in your credit card statement, so that you can easily see what you owe and how the charges break down, and check over the statement for potential errors and overcharges.

Current Balance: This is the total amount that you have spent on your card.  This will not just show the amount for the past month, but will include all spending on the card that has not been paid off.  

Previous Balance: The amount that you owed in total last month.  If you paid off the balance, or just some of the balance, this will usually be acknowledged on the statement with the phrase 'Payment received, thank you' and the date the payment was received.

Credit limit: This is the total amount that the credit card company has allowed you to spend on your card.   You need to subtract your Current Balance from this credit limit to see what credit you have available.  For example if your credit limit is £2,000 and you have a current balance of £1,500, you have £500 left to spend.  Going over this limit will cost you a hefty fee, so keep a close eye on your limit.

Watch out for any letters from your credit card company informing you that they have raised your credit limit without you having asked for this to be done.  This happens when the card companies want to encourage you to spend more on your card.  If you get your limit raised, call and get it immediately reduced again. You don't need that kind of temptation.

Payment Due Date: Do remember that if the payment is due by this date, you need to have paid earlier than this.  To be on the safe side and avoid a possible late payment fee, make your payment at least 3-5 working days before it is due.  This gives the money time to settle in the credit card company's account.

If you make a payment later than the due date, you will be charged a fee.  The size of the fee depends on the credit card provider, but it's usually quite large.  If you have a reasonable explanation for why the payment is late, call and let the company know and they might waive the fee (in which case it would appear on your next statement as a credit).  

However, they are much more likely to give you the benefit of the doubt if you are normally a prompt payer, so keep up to date with your payments wherever possible.  Setting up a direct debit from your current account is one way to avoid late payments.

Cash Advance Fee: A cash advance fee is applied when you use your card to withdraw cash from an ATM machine, or purchase foreign currency on your card.  Check the terms and conditions of your credit card provider, they'll always publish details of these charges.  

As a rule of thumb, avoid using your credit card to take out cash wherever possible - it's an unnecessary expense if you can take out the cash for free on a debit card or in-branch.

APR: Short for the 'Annual Percentage Rate', this is the amount of money that you will be charged for spending money on your card over the course of the year.  
The higher the APR percentage, the more interest that you are charged for using your card and therefore the more the card is costing you.  

Sometimes, the APR will read 'x% APR (variable)' or 'x% APR (typical)'.  The 'variable' or 'typical both mean the same thing - that this is the APR that they will charge the average card holder, but rates may vary if you don't make regular payments or pay back some, but not all, of the money you owe in a year.   

Different rates are often charged for purchases and balance transfers too, and card providers usually offer a 0% rate on both for an initial period to tempt new customers.  'Variable' or 'typical' APR is just a way of the company telling you that rates may vary from the average', advertised rate according to different circumstances.  So how does 'APR' differ from 'interest rate'? Click here to read more about the difference between interest rate and APR.

Minimum Payment Due: This is the smallest amount that you have to pay off on your credit card balance each month to avoid a charge. You should always aim to pay off more than this amount if you can.  The credit card companies usually set the minimum monthly payment so that you are just paying off the interest on the money you spent, but none of the actual debt.  

This means that if you only ever pay off the minimum balance you never actually start paying off your debt.  Work out how much more you could afford to pay off each month - even an extra £5-10 per month will get that debt paid off a little quicker.

Fees and Charges: All of the charges that you have incurred over the course of the month will be separated out.  These can include monthly interest, late payment fees (from the previous month, if you didn?t pay off your balance in time), and a fee for exceeding your limit.

The spend on your account may be separated out into 'Purchases' and 'Balance Transfers'.  Payments count as any transactions where you have bought a product or service, and balance transfers are where you have used your credit card balance to pay off a balance on another card, or paid money into another account.  

If you received a 0% interest-free rate on purchases and/or balance transfers, make a note of when this rate runs out.  You'll start being charged for all transactions after the end of this introductory period, and you don't want to be caught unawares.

Credits: These are usually refunds that have been added to your card balance, for example if you have taken an item back to the shop and had the amount put back onto your card.   Alternatively, if you were overcharged by mistake in a previous month and pointed it out, the refund would go back onto your balance the following month.

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