Deciphering a Credit Card Account
You know that you need to pay your credit card bill on time and that you shouldn’t strive to hold a balance. But do you know what everything on your credit card statement really means?
Here’s a sample statement from CreditCardInsider.com outlining what you need to know:
Account Summary: Shows your previous balances and payments, current balances per billing cycle, how much of your credit is still available, etc.
Previous Balance : If you did not pay for the entire last billing cycle, the remaining amount will be included in your new statement. You will want to pay it back as soon as possible so that it stops earning interest. In this example, the cardholder has paid the entire balance of $ 482.42 in full, so there is nothing to worry about.
New balance (aka ” Statement Balance ” or ” Outstanding Balance” ): the amount payable for the current reporting period. This includes your purchase (every day’s expenses and bills) as well as your previous balance and any payments, cash advances and interest payments accrued.
Minimum Payment: How much you need to pay before the Due Date to avoid late fees . You should always pay more than the minimum to keep up with, incur interest, and accumulate debt (ideally, you should pay the New Balance / Statement Balance in full monthly). The table in the lower right corner shows how long it will take for you to pay off the balance on your statement if you only pay the minimum each month.
Grace period: it is not in the account as such, but you have a grace period between the end of the billing cycle and the due date, during which you will not receive interest on your balance. According to the Card Act, if “the credit card company offers a grace period (like most), they must give you at least 21 days from the date they receive your statement for payment before they start charging interest on new purchases,” writes CreditCardInsider. com. In the operator example above, the billing cycle ends on 12/28/17, but the cardholder had to pay off the balance by 01/23/18. (Balance transfers usually do not receive this grace period.)
“The full payment of the new balance at the due date causes an interruption in the payment of interest on new purchases during the current billing cycle – if you pay in full sequential,” writes CreditCards.com .
Not everyone is eligible for the grace period, and if you don’t pay your bill before the due date, you could lose it in the future. And you’ll start earning interest right away, as CreditCards.com explains:
[C] Posting any size balance in the next billing cycle means that there will be no grace period for your purchases during that cycle. The card company will start charging interest on your purchases on the day you make them. So leaving even $ 1 on the unpaid balance on your card will cost you significantly more than a measly financial expense for that dollar.
The site advises that it may take two months of timely and full payment to re-qualify for the grace period after you have a balance (the exact terms of the grace period will be specified in your Card Agreement).
Available Credit: How much of your credit limit – The Credit Access Line in the statement above – you can still use before you have to pay off part of the bill.
You can think of it in terms of using your credit : to maximize your score, keep your balance at 30 percent of your limit (preferably 10 percent). Your Available Credit must be at least 70 percent of your line of credit. In the example above, the cardholder uses about 10.5% of their cap.
To maintain low utilization and high available credit, you can make payments up to a month before the due date. This will boost your bill slightly and ensure that you can pay the bill.
How Credit Card Payment Works | CreditCardInsider.com