Know Your Credit Card Statement

Banks and credit card issuers are obliged to share credit card statement(s) after the end of each billing cycle. Understanding various terminologies used in the statement would not only help maximise credit card benefits but also help practice financial discipline. 

Let’s understand some of the most important terminologies found in credit card statements:

Finance charges: This refers to the interest cost incurred on the credit card bill amount not paid by the due date. Additionally, it is also levied on cash withdrawals made through credit cards right from the date of their transactions till the repayment.

Given that most card issuers charge finance charges in the range of 23-49% p.a., cardholders should try to repay the entire amount by the bill due date and avoid cash withdrawals through credit cards to the extent possible. Those unable to repay their entire bill amount by the due date should consider converting their non-payable dues to EMIs. The interest cost of credit card EMI conversion is much lower than the hefty finance charges. EMI conversions also come with tenures widely ranging from 3-60 months, allowing cardholders the flexibility to choose tenure on the basis of their repayment capacity and cash flow.

Minimum amount due: This amount refers to the proportion of your credit card bill, which if not paid by the due date, attracts a late payment fee. Card issuers usually keep 5 per cent of the total bill amount as the minimum due amount. Also, any existing EMIs on your card along with various charges will also be added to the minimum amount due. Keep in mind that the late payment fee levied on the non-payment of the minimum amount due can go up to Rs 1,300 for each billing cycle. Remember that just paying the minimum amount due would still attract finance charges on the unpaid bill amount.   

Statement period: One of the first sections that you will come across in your credit card statement is the statement period, also known as the billing cycle. Transactions made at the beginning of the billing cycle get more time for repayment without incurring any interest cost, as long as the past and current dues are repaid by the due date. Being aware of the statement period can help plan big spending with the objective of making the most from the interest-free period.

Credit limit: Credit limit refers to the maximum outstanding balance that you can keep on your credit card without incurring any over-limit fee. ‘Available Credit Limit’ refers to the total free limit available for fresh card transactions. This amount is derived by deducting the transactions, both billed and unbilled, and outstanding EMIs from the credit limit of that credit card.

Keeping a track of the credit limit can help contain the credit utilization ratio within 30 per cent. This ratio is the proportion of your credit limit utilized by you. Since lenders tend to consider credit utilization ratios above 30 per cent as a sign of credit hungriness, credit bureaus reduce the credit score of those exceeding this mark. Request a credit limit increase from your existing card issuer or opt for an additional credit card if you tend to breach this mark frequently. 

 Transaction details/description: Credit card statement includes a detailed record of all the credit card transactions made during a billing cycle. It includes both debit and credit transactions carried out during the billing period. All the charges levied by card issuers including finance charges, late payment penalty, and over-limit fee, etc along with the taxes on them are listed in the transaction history. Tally the transaction listed in your statement with intimation from the card issuer sent through SMS and e-mails. Inform the card issuer if you spot an error or unauthorised transaction in the history.

Reward points summary: This section summarizes the opening balance of your reward points, the number of reward points earned during the billing cycle, redeemed/lapsed reward points, the closing balance of reward points, and the number of reward points about to expire in the next 30 days. As most credit cards’ reward points expire within 2-3 years of their credit, keeping a track of the reward point section would allow you to plan the redemption of accumulated reward points.

The author is Director, Paisabazaar.com

DISCLAIMER: Views expressed are the authors' own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.