Reading and Understanding Credit Card Statements

A credit card is a powerful tool: it helps you meet the end-of-the-month crunch, or splurge on that new MacBook even if your bank account does not fully support that idea. However, it’s always a good idea to make sure you take a few minutes to reflect (and maybe even a little bit of regret?) at the end of the month where your money has gone. This is where your credit card statement comes in handy.

A credit card statement is a detailed document that summarises all transactions, ranging from purchases, credit limits, and payments to the total amount due- all under one head.

This document can be slightly longer, which is also the primary reason why many cardholders don't read it. Now, this may be a very unwise move. Not knowing how your credit card was used, how much you owe, what interest you are charged, and what balance credit limit you have can land you in soup later!

And this is one risk you do not want to take!

Most cardholders in India regularly send credit statements to their users by mail or electronically. It is the user's responsibility to read and understand credit statements. Read below to understand the importance of these statements and how to interpret/decode them!

Importance of a credit card statement

Credit card statements help you review your transaction history, opening and closing balance, and the credit limits you are eligible for. This statement is paramount for you to understand your financial obligations and liabilities.

Besides providing a neat and clean account of your expenses, it also helps you understand how much money you are spending where and what charges and interest rates you are being subjected to. Additionally, you can check the statement to see if all information is correct, especially the amount, and if those transactions have been duly authorized. Some apps also analyze and bucketize your expenses so you can compare month-on-month how much you spent on food, shopping, or travel.

Sometimes we sign up for free trials for subscriptions we never use and forget to cancel. Or other times, you accidentally end up paying twice because the first transaction had “failed” - but when you look at your statement, you see you were charged anyway.

Not just that, if your card issuer is changing its policy related to a particular component, you can avail information about the same right on your credit statement. Also, you can get an idea of your reward points that can be used to redeem attractive offers!

Hence as a credit card holder, it becomes extremely important for you to understand credit card statements! But how to read a credit card statement? What terms are used in a credit card statement?

Fret not! A credit statement may appear scary, but with a little brush-up on the basic components, you can easily read and understand them!

How to read and understand credit card statements?

Your credit card statement may have confusing words like credit limits, total and minimum dues, and all other transaction details. Read on to know about each component of your credit statement in detail for you to become a pro at reading and reviewing

Let's get started!

1. Statement period

Usually present at the top right of n the document, the statement period represents the time duration for which the statement is generated. Often, the period is a month. But, it need not necessarily be a calendar month and can be a certain number of days that the credit card issuer refers to as a ‘period’.

Many banks in India also provide weekly, quarterly, and even daily statements.

2. Account summary

An account summary is normally the first thing you would see in your credit card statement. As the name suggests, an account summary is a brief gist or summation of all your transactions and credit usage.

Few companies may just state a figure, while others may provide you with the opening and closing balances, payment/credit/purchase/debit details, total dues, the balance of your previous/current cycle, and more.

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3. Payment due date

Now, if credit card holders have outstanding balances, they will need to pay back the balance by a certain date (month ending in most cases) as set by the credit card issuer. This date is referred to as the payment due date.

This is the first part of your credit statement that you should check. This date reflects the time period/ time you have to settle your dues with the concerned credit card company/bank.

Do remember that failure to repay your dues on time can attract heavy penalties, late fee charges, and higher interest on the due balance.

4. Total amount due

This is simply the entire amount that you are liable to pay to your credit card issuer. It is arguably the most important component of your credit statement. It is a representation of the card used during the statement period. This includes opening balance, new purchases, EMI payments, and all transactions, commercial or retail, including interest charges, penalties, and late fees, if any.

Do remember that failure to repay your credit card dues timely can severely affect your credit card score.

5. Minimum due amount

Very often, credit card holders confuse the total amount due with the minimum due amount. There is a stark difference between the two.

The minimum due amount is calculated as the least/ lowest amount of the total balance that you will need to pay/ deposit with your credit card company. Usually, this is capped at 3-5% of the total amount due by most companies. Suppose your total amount due is Rs. 50,000. Then your minimum due amount, applicable at 5%, is Rs. 2,500, which you will need to deposit with your credit card company. You will still be liable to pay the rest - along with additional interest for the delay.

Now, minimum payment can provide partial relief to you when cash is tight, so you don’t have to fork over the whole amount. However, it is recommended that one use this option only as a last resort.

The reason is simple. Whatever fractional amount the issuer receives from you through this minimum payment is used to satisfy your interest largely and then your principle. However, you will need to pay the remaining amount of principal and interest, which shall be compounding with time.

6. Credit limits

In your statement, you are going to find a few terminologies like total credit limit, cash limit, etc. Let us understand each of these briefly.

a. Total credit limit - This can be defined as the total amount of credit you will be eligible for. Every time you swipe your card, the amount will be deducted from your total credit limit. For example, if your total credit limit is Rs. 2 lakhs, you can only avail yourself of this amount from your card. Any expenditure over Rs 2 lakh will incur a penalty.

b. Current limit - Your current limit is dependent on your total credit limit. Taking the above instance, assume you have Rs. 2 lakhs as your limit and owe the issuer Rs. 30,000. Now your current limit here will be Rs. 1,70,000 and not the entire total limit.

c. Cash Limit - This limit is the cash withdrawal you are eligible for. It is like short-term loans, which are taken on your credit card. However, do remember that these loans are expensive and can prove to be very costly if you are unable to repay the due, whatsoever reason.

Reward point summary

Now, this is a very interesting component of your credit statement.

Every time you shop, eat, or swipe your credit card, you get rewarded with points, coupons, offers, and more! These reward points are separately summarized in your statement and can be redeemed as per terms and conditions.

You can check this section to know about carry-over points from the previous cycle, lapsed rewards, available reward points, and more.

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The takeaway

Credit cards are an important part of the modern financial ecosystem. Easy as it is to use a credit card, cardholders should be aware of how they employ these cards. A credit card is an overall summary of the user's credit history and usage through the period in consideration. It depicts overall dues, balances, and payment cycles. Cardholders must understand the various details and components of their credit statement to make sure they’re using their card wisely and not incurring extra debt or fees.