A Guide to the New Credit Card Statements
By Eva Norlyk Smith, Ph.D.
July 16, 2010
Cardholders across the country can look forward to receiving more user-friendly credit card statements in the mail in the month ahead. As of July 1, the provisions of 2009’s CARD Act that specify new rules for credit card statements stepped into effect, putting important financial information at consumers’ fingertips.
The new rules for credit card statements aim to provide greater transparency around the true cost of credit card usage and the effects of different payment choices. Research has shown that when consumers have more information at hand, they tend to make more educated choices. In short, it is well worth familiarizing yourself with the highlights of the new statements.
Here is a guide to the main sections of the new-and-improved credit card statements:
1. Account Summary. The new credit card Account Summary is much more comprehensive. In addition to the totals spent on purchases, balance transfers, and cash advances, the new statements will display a sobering reminder of how much (if any) the cardholder paid in interest charges and credit card fees over the past month.
The Account Summary also lists the card credit limit, well worth checking each month, as issuers are not required to give advance notice when cutting credit limits. Credit limit cuts can not only lead to a card being unexpectedly declined, but could trigger a credit score dip as well, if it significantly affects your debt-to -credit ratio.
2. Payment Information. The new Payment Information section of credit card statements is where you will find the heart of the changes to statements. This section continues to list basic payment information, such as the credit card balance, minimum payment due, and the payment due date.
Immediately below the standard payment information, however, consumers will find two important new notices. The Late Payment Warning spells out the fees or interest rate increases that may result from late payments. This is worth taking note of, since one late payment could trigger a penalty APR as high as 29.99 percent going forward. While the penalty APR generally applies to future charges only, a late payment on a promotional APR balance (e.g. a 0 APR balance transfer offer) may trigger the penalty APR retroactively on the promotional balance.
Beneath the late payment warning is another key feature of the revamped card statement: the Minimum Payment Warning. This section shows how long you would be paying off your credit card debt if you make only the minimum payment each month, as well as how much interest you’d pay for the pleasure. For cardholders habitually paying just the minimum monthly on their credit cards, this will be a particularly eye-opening section.
The same section also shows the monthly payment needed to pay off the credit card debt in three years, how much interest would accrue, as well as the savings compared to paying just the minimum.
3. Notice of Changes to Your Interest Rates (if applicable) As the name implies, this is a section you do not want to ignore. Instead of warning cardholders of interest rate increases in multi-page, small-font letters, card issuers must now display notices of interest rate hikes prominently on credit card statements. For most interest rate hikes, cardholders must be given 45 days advance notice, however, for penalty rate increases triggered by late payments on promotional balances, card issuers are not obligated to give the 45-day advance notice, so don’t expect much warning on these.
4. Important Changes to Your Account Terms (if applicable). Like the above section, this section is intended to make it easier for you to keep track of account changes. It will highlight all account changes, including interest rate changes, fee increases, and other significant changes.
5. Transactions. The Transactions section now details not just the charges you have made to the account, but puts in plain sight what you have paid in interest charges and credit card fees, such as balance transfer fees, cash advance fees, annual fees, and late fees, during the month.
Seeing the sum of fees and interest charges each month for many will undoubtedly be a useful reminder of just how costly credit card usage can be, if not done with caution. That point is further underscored by the Year-to-Date Totals box, which summarizes the total paid in fees and interest for the current year.
6. Interest Charge Calculation. Many cardholders are not aware that some types of credit card charges, most notably cash advances, come with a higher interest rate, as much as 10 percent higher. The Interest Charge Calculation section offers a clear summary of the different interest rates applied to each type of credit card balance, i.e. purchases, cash advances, and balance transfers.
Under the provisions of the Credit CARD Act, any payment amount over the minimum will go towards the highest-rated interest debt. However, issuers can still apply the minimum payment amount to lower-rated interest, so in order to cut down debt most effectively, be sure to pay more than the monthly minimum each month.