Frugalnomics

For some people reading and understanding credit card statements is as natural as reading a newspaper, but for the rest of us it can be like reading a law book. Reviewing your monthly statement is absolutely essential, though. It is your primary means of preventing overages, planning your finances, and preventing identity theft.

To understand your monthly statement, just follow these steps:

1 – Understanding The Terms

Know what everything means. All of the terms used in your monthly credit card statement should have been defined in your initial agreement that came with the card. Many credit card companies also print the terms on the back of the statement or on an included document. Here are the basics, though:

• APR: The Annual Percentage Rate is the interest rate the credit company is charging you on your balance annually. There are fixed-rate APR’s and variable-rate APR’s; most credit card companies use the variable-rate and maintain the right to change it at will, and they will change it if you are ever late on your payments. Also, different types of charges may incur different APR’s. At a minimum, your statement should reflect the APR applied to standard transactions and a separate APR for cash withdrawals. Remember that balance transfers are usually billed at the higher APR of cash withdrawals.
• Finance Charge: This is the amount of money the credit company charged you that month for your current balance. Finance charges are computed by dividing the applicable APR by 365 (the Daily Periodic Rate) and multiplying the result by the “Average Daily Balance” which is an entirely separate calculation.
• Current Payment Due: This is the minimum amount you can pay to not be delinquent on that account. Keep in mind that minimum payments are only about double the finance charge for that month, so paying the minimum keeps you in debt for years.
• Payment Due Date: Your payment must be received by the credit card company by this date. It does not matter when the envelope was postmarked or what happened in between. In most cases, your account will be charged a late fee and your APR increased per the terms of service if your payment arrives even a day after this date.
• Statement Date: This is the end date for the statement. Any transactions made after the Statement Date will be reflected on the next statement.

2 – Check Your Transactions

The easiest way to ensure all of your transactions are correct is to either maintain all receipts at the point of sale or to write down every purchase you make in a notebook. Once the statement arrives, check off each transaction against the applicable receipt or notebook entry. If there is a discrepancy in charge amount or a completely different charge contact the credit card company immediately. They will have a process for dispute, but at a minimum you need to make sure the card information is not being used by someone else and order a new card if that is the case.

If you share the card with another person, make sure there wasn’t simply an error in communication. As a side note here, it is also a good idea to just get a new card every year rather than keeping the same information for long periods of time.

3 – Review All Policy Changes

Check the notes and other documents that arrived with the statement. Most credit companies don’t announce to loudly changes in terms to your account, especially when the change is in APR. They are required to report it, though, so check all included documentation for any account changes.

4 – Online Statements Versus Month End

Your online statement is not the same as your end-of-month statement. Most credit card companies now provide the consumer with the ability to review their account online. Keep in mind a couple things when doing this.

First, transactions will often not reflect the actual price. Many merchants wait until the end of the week to send the actual transactions, so there might be a $1.00 pending charge that is just saving the spot for the actual charge later. Another common case is when you eat out and leave a tip after the card is run; the complete charge often will not be reflected for a few days.

Second, penalties, APR changes, and many other administrative details will not be included in the online report. The monthly statement is the ONLY official record of your account activity.

Final Thoughts

Reviewing your monthly credit card statement can sometimes be confusing, but it is certainly possible and absolutely necessary. If there is anything that you do not understand when reviewing your statement, feel free to call the company and ask for clarification. Money is difficult enough to come by to lose it to poor understanding of or apathy toward your monthly statement.