By Candice Choi -- AP Personal Finance Writer

NEW YORK (AP) — They say one thing, but often mean another.

It's one reason credit card statements can slowly ensnare people into bigger debt loads. The mysterious stew of fine print on the back of bills doesn't help clarify matters.

A law passed in May will bring some relief. Starting next year, credit card companies will need to make statements easier to read and spell out the price of carrying a balance.

For instance, companies will need to provide a table showing how much interest charges will cost if only minimum payments are made. Cardholders will also be shown how much they need to pay each month to deplete a balance within three years.

What the law won't do is wipe statements clean of misleading or confusing terms. The details of just how banks will implement the changes by February aren't yet clear either.

So until then, here's a guide to decoding what your credit card statement really means.


There are two reasons why the term "available credit" is misleading.

The first is that card companies don't have to stop you from exceeding your credit limit. But they will slam you with a fee for doing so.

Nearly all cards have over-the-limit fees, with the average being around $29, according to Consumer Action, an advocacy group based in Washington, D.C. One provision of the new credit card law is that card holders will have to elect the option to make charges beyond their limits.

The second reason the term is misleading is that a transaction can be denied before your so-called available credit is used up. This might happen if your spending habits are deemed risky or out of character.

For instance, starting to carry a balance after years of paying off bills in full could trigger a clampdown. Another red flag might be if you get too close to drying up your credit limit, said John Ulzheimer, president of consumer education at

"That's when you might see them starting to slam the brakes," he said.

Another common mistake is confusing your available credit with your cash advance credit line. The two should be listed separately, with the latter coming with a significantly higher interest rate.


It's easy to dismiss this figure, since its purpose isn't immediately clear. The bottom line: It's an amount used to calculate finance charges.

To determine your interest charge, the card company starts with the average daily balance — which is your balance at the end of each day during a billing period, divided by the number of days in the period.

That number is then multiplied by a monthly period rate, which is the annual interest rate divided by 12. This determines your financing charges for a given billing period.

In some cases, banks use daily periodic rates, meaning they divide the annual interest rate by 365. The rates should be listed under a heading such as "Finance Charge Schedule."

So what does that mean for you? Paying off bills early — even before the due date — would lower your average daily balance and subsequently your financing charges.

Another thing to watch for is double-cycle billing. It can work in a couple different ways, but generally the idea is that interest is charged on past balances.

As an example, let's say you start a billing cycle with no balance, charge $500 and make an on-time payment of $450.

Under double-cycle billing, you would be charged interest on the full $500, rather than on just the $50 still owed. Card companies need to disclose whether they use the practice on solicitations for opening an account. You can also look for the term "double cycling" in the fine print on your cardholder agreement.

The new credit card law bans the practice. The American Bankers Association says many card companies have already abandoned the practice.


Even if you mail your payment so it arrives by the due date, don't be surprised if you're slapped with a late fee.

One reason is that deadlines can be for a specific time, sometimes as early as 1 p.m. So if your payment isn't processed until later in the afternoon — boom — late fee.

"The banks that have it are probably going to keep enforcing it between now and February," said Ben Woolsey, director of marketing and consumer research of

The time that your payment is due is usually buried somewhere in the terms on the back of your bill.

According to Consumer Action, most card issuers (78 percent) immediately charge late fees if payments aren't received by the due date. The majority (90 percent) also said a late fee is levied even if the due date falls on a Saturday or a holiday.

Online and phone payments aren't always instantaneous either, so give some time for the payment to be processed and cleared.

"It's easy to fall into this euphoria that you can make the payment day before," Ulzheimer said.

The new law will push due date deadlines back to 5 p.m. and require that they don't fall on a holiday or weekend.


Let's say you pay off a $1,000 balance you've been carrying. One might assume you're now debt free. But the following month, you get a bill for interest charges on that $1,000.

This is the phenomenon called residual interest.

What's happening is that interest continues accruing on debt in that window of time between when your statement was issued and when you make your payment. By the time you get your statement and submit the payment, you've racked up more interest.

One way to avoid residual interest is by paying off your balance in full each month, since this gives you a grace period in which you don't rack up any charges. Carrying a balance for just one month, however, can result in charges.

Another way to avoid residual interest is to check your statements online and pay off a balance as soon as a statement is issued, said Linda Sherry of Consumer Action.

Of course, this is not a realistic option for most.


One consequence of convoluted credit card statements is that people have become accustomed to taking only cursory glances before tossing it in the trash.

In the past year, however, banks have sent out important notices about higher interest rates, lower credit limits and even account closures.

"The problem is that they end up in the shredder a majority of the time. People assume it's junk mail," said Ulzheimer of

Being oblivious to such changes comes with serious consequences. For instance, your FICO score could take a beating if you unwittingly use up a greater portion of your credit limit. Or you might count on a line of credit that isn't as deep as you thought.

"You don't want to get to a position where you find out the hard way that your purchase has been declined because of a lower limit," said Ulzheimer.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.