In the past few years, with the rise in standard of living, more disposable income, and the move towards cashless payments, usage of credit cards has increased tremendously. More and more people have become comfortable with using it, just as many merchants have become comfortable accepting cards as well.
So what happens when you use your credit card at a shop or a website?
When you swipe your card, the merchant’s credit card terminal / gateway sends a request to the acquiring bank, who then sends it to the card network (like MasterCard, VISA, American Express).
From here, the information is sent to the issuing bank, which checks if your card account is in good standing, and that you have sufficient balance on your card to make the purchase, based on which the transaction is approved or declined.
This confirmation is sent back to the merchant or acquiring bank via the card network, indicating to the merchant if the transaction is approved or not.
If successful, the amount is charged to your credit card and you will get an SMS and email alert to that effect. Shortly, you will also receive your card statement from the bank as per your billing cycle.
So what exactly is in your credit card statement? Although the format varies across banks, most of the terms used are the same.
The date when your statement is generated every month. It differs across customers and issuers and is generally the same from your very first statement after you get a credit card, when your billing cycle is set.
Your unique 16 digit (Master/VISA) or 15 digit (American Express) card number, which is also embossed on the front of your credit card. This number is also referenced when you make payment towards the card, whether online or online, and should never be openly shared with anyone.
Payment Due Date
Depending on the issuer, your credit history, and the type of card, it could be anywhere from 20-30 days after the Statement Date. Most people often interpret this as the date by when they’re supposed to make the payment. In fact, it’s the date by when the card issuer should receive your payment, so always try and make the payment 2-3 days before this date.
This amount represents the overall amount outstanding on your card, including previous balance, current purchases, service charges and service tax.
Minimum Amount Due
The minimum amount you’re required to pay by the Due Date. Although calculations sometimes vary, it is typically 5% of the Total Dues outstanding on your card. This is the amount you have to pay by the due date, failing which you could face hefty penalties and be labeled a defaulter by the bank.
This is the maximum amount upto which you can spend on your card at any given point of time, assuming there is no previous outstanding. Credit limit is set by the issuer when you first apply for a card, and is often based on income, your credit score or at times, some special promotion. Periodically, this can be revised upward or downward depending on your income, spending and payment pattern, credit score, delinquency (if any) and other factors. You should ensure you never cross this limit. While some issuers may allow exceeding this limit in case of emergencies, charges for doing so could be quite high.
Available Credit Limit, Available Cash Limit
The Available Credit Limit is the amount available to you at the time the statement was generated, and keeps changing as you make fresh purchases and payments.
The Available Cash Limit is the amount of cash you can withdraw on your credit card. Usually a percentage of your credit limit, the interest charges are quite high and this should be avoided to whatever extent possible as there is no interest-free period here; charges are levied from the moment you withdraw the cash till it is paid up in full.
If you didn’t pay the previous outstanding amounts in full, the pending amount shows up as the Opening Balance.
Payment / Credits
This includes payments made by you as well as any refunds, reversal of charges or any surcharge waivers.
Purchase / Debits
All purchases made by you in the current billing cycle and any charges levied by the credit card company, like late payment fees, interest fees, etc.
These are the charges levied by the card issuer on all amounts that are outstanding when the statement was generated. The interest rate varies across banks and is typically 2.95% to 3.5% and above per month.
So that takes care of the major terms on your credit card statement. We hope you found this useful, and find it less daunting to go through your next statement.