Credit Cards - Understanding the credit card statement

Vocabulary Credit Card – plastic card that entitle the holder to make purchases and pay for them later Revolving charge account - the entire bill does not have to be paid for each month. You can make partial payments. Most credit cards have this. Usually have high interest rates Truth-in-Lending Act – protects you if card is lost or stolen. Notify the credit card company immediately. You are not responsible for any charges after you notify the credit card company. If charges are made before you notify them, you could be liable. The max liability is $50.00.

Vocabulary Cont. Debit card – you are deducting money directly from your account. Like writing a check. Average Daily Balance – the average amount you owe each day of the billing cycle. This changes each day based on purchases or payments made. This is how credit card companies calculate your finance charges.

Example 1 Frank lost his credit card. He notified his creditor before the card was used. However, late in the day, someone charged $700 worth of clothing on it. How much is Frank liable for? 0 dollars – he notified the company before the card was used   Carrie had her card stolen, but did not realize it until 3 days later. She notified her credit card company, but someone had charge $2,000 on her card. How much is Carrie liable for? $50 – the card was used before she notified the company

Example 2 Rebecca did not pay last month’s credit card bill in full. Below is a list of Rebecca’s daily balances for her last billing cycle: For seven days, she owed $456.11 7 x 456.11 = 3,192.77 For three days, she owed $1,177.60 3 x 1,177.60 = 3,532.80 For six days, she owed $990.08 6 x 990.08 = 5,940.48 For nine days, she owed $2,115.15 9 x 2,115.15 = 19,036.35 For five days, she owed $2,309.13 5 x 2,309.13 = 11,545.65 Calculate Rebecca’s average daily balance. Total = 43,248.05 / 30 days in billing cyle = $1,441.60  

Work:Month: _30 day billing______________ Sunday Monday Tuesday Wednesday Thursday Friday   Saturday 1 456.11 2 3 4 5 6 7 8 1,177.60 9 10 11 990.08 12 13 14 15 16 17 2115.15 18 19 20 21 22 23 24 25 26 2309.13 27 28 29 30

Example 3: Rebecca pays a finance charge on her average daily balance of 18% per year. What is her finance charge for this billing cycle? 18% / 12 months = 1.5% 1,441.60 x .015 = $21.62 finance charge