Read your credit card statement carefully to manage your cash flow

All credit card issuing banks send credit card statements every month to the cardholders but most of them do not take care to check the details of the bill and just pay the amount due. At times this habit can prove to be costly especially, when there is increase in cloning of cards and phishing. By chance there can frauds or incorrect payment information in the statement. Some of the cardholders avoid reading the statement because they cannot understand terminologies used are confusing. Here is the brief explanation of some of the terminologies to make easy for you to understand.

Credit card number: A unique 16 digit number is assigned to you by the bank and is superimposed on your credit card. When you pay your credit card bills through cheque or if you have to do any correspondence with the bank, then it is needed. You must write this number somewhere so that you can keep it handy with you, in case of any theft or fraud you can report to the credit card issuer. This number should always be stated on your credit cards statement.

Credit limit: The maximum amount credit card issuer allows you to borrow. When you apply for credit card, the issuer checks your income profile and your payment track record if you have taken any card before, then is decides the limit accordingly. If your previous payment track record is good, your credit limit can be enhanced and vice versa. If you exceed the credit limit, the credit card issuer will charge an overdrawn fee. This fee is a fixed percentage of the overdrawn amount subject to a minimum and maximum amount.

Available credit limit: The difference between your credit limit and the amount you have spent i.e. total amount due is the available credit limit. If your credit limit is Rs 1,00,000 and you have spent Rs 20,000 then your available credit limit is Rs 80,000.

Payment due date: This is the date by which you should make payment of your credit card bill. This is not the last day on which you can issue the cheque but by this date the cheque should be realized i.e. your account should be debited and the credit card issuer should realize the amount on or before this date. Paying your credit card bill before this date enables you to keep your credit card history and your credit score good.

Statement date: The credit card issuer generates a billing cycle when issues a new credit card. On the basis of this it fixes the date on which the bill is generated. According to this date card issuer calculates the interest amount if you do not pay the full outstanding amount by the payment due date, even though the due date may fall weeks after the statement date.

Cash advance/ Cash limit: The amount you can withdraw from the ATM is called the cash limit. It is not your credit limit. On cash advance the card issuer will levy one-time transaction fee which could be to the tune of 2.5-3% of the cash withdrawn. In addition interest charges will start increasing immediately. The interest charged on cash withdrawals is more than those charged on your purchases. So, you must avail this facility only when you need funds on an emergency basis.

Total amount due: It is the total amount outstanding on your credit card i.e. the amount you owe to the credit card company. This is an increasing amount comprising of interest or any other charges such as over drawn fee among other things.

Minimum amount due: It is a minimum amount fixed by credit card issuer which you have to pay every month which is generally a certain percentage of the total amount due. Generally it is 5-20% of the total amount due. Non-payment of the minimum amount is treated as default and a late payment fee will be levied.

Some of the card holders pay the minimum amount due, the unpaid amount is carried forward to the next billing cycle and so on, under the revolving credit facility. In such cases you don’t enjoy interest free period on any fresh purchases. You will have to pay the interest from the day on which the purchase has been made. This will continue till the total amount due has been paid for. Moreover, even if you pay the minimum amount due, interest will be charged on the total amount due which will include the minimum amount due. For example, if you have paid 60% of the total amount due before the due date, interest will be charged on 100% of the total amount due rather than on the balance 40%. To avoid paying high interests opt for paying minimum amount due only if you’re running short of money to pay off the total amount due.

Transaction details: All transactions done using your credit card, which includes purchase, payments made are recorded under transactions details. Moreover any charges levied by the credit card company such as interest, annual fee, late payment charges among other things will also be listed in details. Therefore it is necessary to check your card statement in order to spot any discrepancy in the details.

Reward points: On credit card every card issuing company give reward points on using the card. In the statement the record of the points accumulated till date is given. You can redeem these points on a need basis against gifts, vouchers, etc enlisted by the card issuer. Each credit card issuer has the different method of redemption.

Now you must have understood why it is important to go through the card statement, it not only protects you from fraud but it will also help you manage your cash flow better.