How to Understand Your Credit Card Statement

Your credit card statement holds the answer to a question a lot of people ask: why do I owe more than I thought? Once you understand a few dates and one or two numbers, the statement stops being a mystery.

A few basics on credit cards

• Every credit card gives you a window of time to pay for what you've bought — that's the grace period, and it's why it's called credit.
• The billing cycle is usually 29 to 31 days. The last day of your billing cycle is your statement closing date.
• The payment due date is usually 20 to 25 days after the statement date, giving you time to pay the balance from your last cycle. Some issuers let you pick a due date in the month — always choose the date furthest from your statement date.
• Notice that none of these dates line up. If you pick a fixed payment date each month (say the 6th or 21st), the number of days you have to pay your statement balance will change from month to month.
• The minimum payment keeps you from being late — but it's also designed to keep you paying interest. If you pay only the minimum (about 2–3% of the statement balance), it can take 20 years or more to pay off the card.
• The most profitable customers for credit card companies are the ones who pay the minimum and carry a balance every month.

A few tips to avoid never-ending payments

• Always pay more than the minimum. If the minimum is less than 3% of your statement balance and the rate is 29.99%, you'll be paying interest forever and barely touching the balance.
• Watch the cost of "starter" cards. A starter card with a $500 credit limit, a $100 annual fee, and a 29.99% APR — paid at the minimum for a year — can cost you $250 in fees and interest. You just paid $250 to borrow $500 for a year.

For a walkthrough of every term on a typical statement, see credit.org — how to read your credit card statement.