13 What is the credit card statement telling me?
The next video explores what you will find on a typical credit card statement. Watch carefully so that you can complete the next activity – the last one in this session.
Download this video clip.Video player: mmmft_1_video_week1_section13_credcard.mp4
Let's have a look at the typical items on a monthly credit card statement.
Statement date, this is the date that the bill is issued. Most credit card companies provide their bills online. They prefer to do this, as it saves money compared with sending the bill to you in the post. Available to spend, this is the difference between the credit limit the company has given you and the outstanding balance on the account.
Current balance, this is the amount you owe. It includes any interest and other charges relating to any unpaid balance from the previous months. In this example, the previous month's balance, the previous statement balance, was paid in full and on time. So no interest has been added to the account. You can see how repayments or credits to the account appear with the tag CR.
Credit limit, this is the credit limit on the account, and it can't be exceeded. The credit limit is set by the credit card company. They have the option to move it up or down. You may have the right to apply for an increased limit, but the final decision rests with the credit card company.
Payment due date, this is the date by which you have to make at least the minimum payment due. Remember, the company must have received the money into their account by this date, so make sure you don't miss it. If you do make a late payment or no payment, or if you pay less than the minimum payment, you'll incur a charge, called a default charge. Even if the minimum or a higher payment is made on time, interest on any remaining outstanding balance is added to your account.
Minimum payment, this is the minimum payment you have to make for this month. The minimum varies from company to company, but it's usually the higher of a defined percentage of the balance and a given amount of money, so for example, the higher of 2 percent of the outstanding balance or 20 pounds.
Estimated interest next statement, this is an estimate of how much interest will be added if only the minimum required payment is made and made on time. On outstanding balances, the estimated interest added is based on the time period from when the items were added to the credit card account, when you used the card for shopping, to the repayment date on next month's bill.
Activity 4 Understanding interest charges on credit card accounts
Timing: Allow about 10 minutes
The credit card statement estimates that if only the minimum amount of £25 is paid off the outstanding balance of £355.74 then the interest to be added will be £7.41.
- What is this estimated figure as a percentage of the outstanding balance (less the £25 minimum payment)?
- The monthly rate of interest for balances held on the card is 1.24%. Why is the percentage much lower than the percentage you calculated in the first question?
- The percentage is [£7.41/(£355.74 - £25)] x 100
This is (£7.41/£330.74) X 100 = 2.24%
- This is higher than the monthly interest rate of 1.24% because it is based on the time period between the purchases made with the card and the payment date on next month’s bill. This will be much longer than a month – in fact it will typically be closer to two months.