Understanding Your Credit Card Bill

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When you receive a credit card bill in the mail, you may be faced with a number of questions. All the various charges, and scenarios that can play out when it comes to paying a credit card bill can get overwhelming. With this guide, you will be able to understand all the components of your bill, what the best practices are when it comes to payment, as well as the consequences of missing payments. Finally, we also equip you with phone numbers, links, and payment mailing addresses for the largest credit issuers in the nation.

What Makes Up My Credit Card Bill?

Your credit card bill can consist of more than just your total purchases. Depending on how you use your piece of plastic, you may be charged various fees, or encounter additional balances. Here all the charges that may show up on your bill:

Previous & Purchase Balances: The biggest chunk of your monthly credit card bill will usually be made up of purchase and previous balances. Any portion of the bill you did not pay last month will be back (plus interest), and any new purchases made within the billing cycle will be added on top of that.

Balance Transfers: credit cards allow you to transfer balances to/from other credit cards. If you do this, the balance simply moves over and becomes part of the new credit card’s bill. Keep in mind that transferred balances can have different APR and fees associated with it.

Cash Advances: certain credit card purchases (such as lotto tickets) or using your card to withdraw money from an ATM will appear on your bill as a ‘cash advance’. This portion of the balance begins accumulating interest immediately, and does not have a grace period. Cash advances are usually a really bad deal, and should be avoided due to their high interest rates.

Interest: this finance charge can be thought of as the price you must pay for taking out what is essentially a loan. Unless you pay your entire credit card bill at the end of the month, your next month’s bill will include the unpaid balance plus a certain percentage on top of that. This percentage is what is referred to as ‘interest’, and it is derived from APR.

Fees: on top of the payments you must make that result from purchases and transactions, there is a number of fees a credit card user may come across. These fees include:

    • Annual Fee: some credit cards charge users a membership fee, referred to as the ‘annual fee’. For major credit issuers (Chase, Citi, American Express, etc.), this fee will usually be charged once a year. It is possible, however, for some issuers to instead break this fee up throughout the year – in those cases, the charge is then referred to as the ‘monthly fee’. Certain credit cards will also waive the annual fee for the first year, while others charge no annual fee at all.
    • Transaction fees: Certain types of transactions will incur additional charges. The most common transaction fees result from balance transfers, cash advances, and using the card abroad. Balance transfers are typically between 3% of the total or $5 (whichever is greater). A common cash advance will cost 5%/$10 (whichever is greater). Foreign transaction fees result from using your credit card when outside of the United States. Typically, these range from 2.7% to 3%, however some credit cards waive them entirely.
    • Penalty Fees: cardholder errors can result in a number of various penalties being charged. These include missing your credit card bill’s due date, going over your credit limit, or having a payment be withdrawn (such as a bounced check). The 2009 CARD Acts protects users from being charged excessive fees. Late payment fees may not exceed $35 or your total balance (whichever is lower).

The Truth in Lending Act forbids personal credit card issuers from charging more than 25% of your total credit limit in fees. Be wary of credit cards that try to charge you excessive fees, such as "application fees". Some smaller institutions engage in what is known in the industry as "fee harvesting". These practices are often highly unfavorable to consumers, and sometimes illegal.

Paying Your Credit Card Bill

Generally, when you receive a credit card bill you should do your best to pay it right away, in its entirety. That way you can avoid worrying about all the things we explain in the following sections. However, if you wish to know how minimum payments are calculated, or what happens when you miss credit card payments, the answers lie ahead.

Minimum Credit Card Payment

All credit card users are obligated to make the bare minimum payment each month. This minimum differs from issuer to issuer, and even from card to card. The most common minimum payment uses the following calculation:

Minimum Payment = Interest + 1% of Total Balance Due

We generally advise readers to steer clear of making just the minimum payment. Paying less than the full amount due will result in being charged interest, which is a needless expense. It might not seem so at first, but paying just the minimum amount each month will result in not being able to pay off your debt for years. We worked through an exercise of calculating your balance, if you are making minimum payments on a $1,000 balance, with 15% interest. We graph the end-of-month balance, over a period of 6-months below.

This graph shows how little the balance decreases in making minimum payments

Note how slowly this balance is going down, when you make just the minimum payment of $25. In fact, it would take 5 years to pay off that $1,000 charge, at this rate. By the time you finish paying off the $1,000, you would have paid over $380 in finance charges.

If you are having difficulty paying your credit card bill, and are paying less than the full amount due, consider refinancing, and getting a balance transfer credit card. This will allow you to move your existing balance to a new card, which will not accumulate interest for a set period of time - giving you more breathing room.

What Happens If I Pay My Bill Late?

Missing your payment due date carries consequences that can, in some cases, be long lasting. What exactly happens depends on how long it takes you to pay off your bill.

Less Than 30 Days Overdue: You will receive a fine of no more than $35. Some credit issuers will put a note on your credit report. Most, however, will only charge you the late payment fee. Your credit issuer may raise your APR on new purchases as well, though it needs to give you a 45 day notice before doing so.

31 to 60 Days Overdue: Despite a range of days overdue being given, individuals who fail to pay their bill for this long will be categorized as ’60 days overdue’ on a credit report. Make no mistake about it, being this late on your payment will almost definitely result in your creditor reporting it on your score. This, of course, will have adverse effects on your credit rating.

60+ Days Overdue: The longer you remain delinquent in payment, the worse the impact on your credit report/score will be. Note that even if you are 150 days past due, your bank never has the right to raise your APR on an existing balance, or increase your new purchase APR past 29.99%.

What Happens if I Pay Less Than the Minimum?

Paying less than the minimum amount due counts as a missed payment. However, it is not without some potential benefit. If you pay something towards the balance, and speak with a bank representative there is a greater possibility of you not being reported to a credit agency, if you are less than 30 days overdue. Anything past that is likely to make little difference to your financial institution.

How Are Payments Applied?

When you submit a minimum payment towards your credit card bill, it is applied in order of increasing APR - that is, it gets applied to the lower APR categories first. For example, if your total balance consists of purchases with a 15% APR, and a cash advance with 24% APR, a minimum payment will first go towards paying off the regular purchases before paying for the cash advance. All payments in excess of the minimum, will go towards paying off the highest APR balances first.

If your balance is part of a promotional offer (such as 0% APR for 12 months), during the last two months of the offer the bank is required to allocate all payments towards the promotional offer. This is counter to the usual policy, as this APR will be, undoubtedly, the lowest one on your bill.

If you don’t carry a balance, and pay your bill it its entirety, this will not affect you. Unfortunately, individuals who can only make the minimum payments will be stuck accumulating their worst interest rates at all times.

Banks are permitted, but not required, to apply payments in any order you request. However, the general trend is to strictly adhere to the above explained convention. Because banks make a significant part of their money on collected interest payments, it is in their interest to hold a steadfast position on the way payments are applied to a bill.

Grace Period: How to Avoid Paying Interest

The grace period applies to the time during which you are able to pay off a credit card charge, without it incurring interest. The grace period is usually 21 days from the time you receive your bill. That means that as long as you are fully paying your total credit card bill, at the end of each billing cycle, you will not have to pay interest.

The grace period does not apply to cash advances. If you decide to take out a cash advance, you will begin incurring interest immediately. It is part of the reason behind why taking one out is, almost always, a bad idea.

Helpful Resources

Below we have provided the phone numbers/websites for each of the major credit card issuers in the United States. You can use this to contact your financial institution about questions about your bill, or to make a payment over the phone.

Issuer Billing Phone Numer Billing Website
American Express 800-528-4800 Link
Bank of America 800-236-6497 Link
Barclays 302-622-8990 Link
Capital One 800-227-4825 Link
Chase 800-436-7958 Link
Citibank 800-950-5114  Link
Discover 800-347-2683 Link
U.S. Bancorp 888-852-5786 Link
Wells Fargo 877-805-7744 Link

Some credit card issuers allow you to mail-in a check or money order to pay your credit card bill. Below you can find a list of some of the most popular issuers, and their payment processing locations.

American Express 
P.O. Box 360001 
Ft. Lauderdale FL 33336-0001

Bank of America
PO Box 15019
Wilmington, DE 19886-5019

Barclaycard Card Services
P.O. Box 60517
City of Industry, CA  91716-0517

Capital One has several payment centers. To locate the one which applies to your region, follow this link.

Chase Cardmember Services
P.O. Box 94014
Palatine, IL
60094-4014 

Citibank / Choice 
P.O. Box 183037 
Columbus, OH 43218-3051

Discover Financial Services
P.O. Box 6103
Carol Stream, IL 60197-6103

Wells Fargo Financial National Bank
PO Box 660431
Dallas, TX 75266-0431

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