Got your first credit card? Here’s how to read the credit card bill

Details of statement heads

1. Payment Due Date and Minimum Amount Due (MAD)

The payment due date is the deadline by which you must pay your credit card bill to avoid late payment fees. The minimum amount due is the minimum amount you can pay to keep your credit card account active and is usually 5% of the outstanding balance. But remember that you’ll be charged interest on the remaining unpaid balance. For example, if your total bill is ₹10,000 and but you pay the minimum due i.e. ₹500, you will avoid paying the late fee but the outstanding ₹9500 will attract interest until it is paid. Making full, timely payments are essential to maintain a healthy credit score.

2. Credit Limit and Available Credit

Your credit limit is set by your card issuer and is the maximum amount you can charge to your credit card. When you spend a part of your total credit limit, the remaining credit is the amount available to you. For instance, your credit limit if ₹50,000, but you have already used ₹20,000 out of it, the limit available to you till the end of your current bill cycle is ₹30,000. Monitor your available credit helps regularly to avoid overspending and stay within 30% of your credit utilisation ratio, which is a key factor in your credit score.

3. Account Summary and Transaction Description

The account summary provides a snapshot of your account’s activity during the billing period, including your previous balance, payments made, new charges, and the current balance. Each transaction listed contains details like the amount, date it was done, and description. Regularly review this section of your statement to dispute inaccurate charges or flag any fraudulent activity that may have been carried out using your card.

Reward Points and Benefits

Many credit cards offer rewards points on select categories of purchases. These points can be redeemed for goods, services, or statement credit. The summary of points you’ve earned, redeemed, and their balance will be mentioned in your card statement. For example, if you’ve spent ₹50,000 and earn 1 point per ₹100 spent, you’ll accumulate 500 points. To make the most of your credit card, understand how its reward program works.

Interest and Fees

If you make part payments on your credit card bill, the remaining balance attracts interest. You can check your statement to find out the annual percentage rate (APR) applicable to your credit card and how this interest is calculated. For instance, if your card has an outstanding balance of ₹10,000 and the APR applicable is 18%, you will be charged a monthly interest of approximately ₹150 over your outstanding balance. The statement will also mention any fees charged towards late payments, foreign transactions, or exceeding the available credit limit (Over limit). Be aware of these charges so you can avoid them.

Credit cards have certainly made life simpler. Understanding your card’s statement is essential so you can monitor your usage and adjust it when needed. This knowledge will help you use your card responsibly and also improve your overall understanding of finances.

The writer is the CEO of BankBazaar.com