Credit card statements are sent by banks to the users of the cards after the end of every billing period. These statements summarize the card usage during the period, however, if you are new to credit cards you may find the details on the statement difficult to understand.
As a credit card user, it is important that you understand the fine print of the statement so as to not be overcharged by the bank and end up with more debt. Apart from errors in your name, address and transactions made, you should be able to spot things like unauthorised charges, billing errors, due dates, etc on the statement before you pay the bill.
1. Statement date
This is the date when your credit card statement is generated. The date is important in the calculation of late payment fee.
In case you miss out on paying your dues, you will be charged interest on the amount due and this interest calculation takes your statement date into account.
The interest will be calculated taking the statement date as the first day.
2. Payment due date
This is the date by which your bank expects to receive payment on the billed amount without additional charges. It is not the date on which payment needs to be made.
In fact, a credit card user must avoid postponing payment due dates as there could be a lag in the payment made and the lender receiving the payment.
For example, if the credit card bill payment was made using a cheque, it could take 2-3 days for clearance. It is, therefore, wise to deposit the cheque at least a week before the payment due date to avoid delay in payments due to bank holidays or other unforeseen circumstances.
3. Billing cycle
It is the period between two consecutive statement dates, which is generally a 30-day period. A billing cycle is a period for which the statement is generated.
All transactions made using your credit card during this billing period will be reflected in the statement. It will also reflect interest penalty and late payment fee (if any), as well as amount received towards payment of the bill or any returns on failed transactions during the period.
4. Grace period
As per RBI rules, banks can impose late payment charges on a card only if the amount due is not paid for more than three days from the payment due date. If not paid within the grace period, the interest will become applicable and will be calculated from the payment due date.
However, it is common for credit card companies to allow a period of 20-25 days from the end of the billing cycle until the payment due. This period is called the 'grace period' for credit card bill payment purposes.
5. Total amount due
As the name suggests, it is the total amount due in a billing cycle period. Apart from the transactions made in the previous billing cycle, it will also include interest applicable or any late payment charges on the previous bill, service charges, annual charges and other transactional fees.
6. Minimum amount due
It is the minimum amount the credit card holder needs to pay on his/her bill by the payment due date to avoid being charged a late fee. It is a percentage of the outstanding amount (typically 5%) or the lowest amount (Rs 200 for example) that needs to be paid for late fees to be avoided.
It is important to understand that if the cardholder only pays the minimum amount due, interest will start accruing on the outstanding amount until it has been settled in full. The only respite from paying the minimum amount due is a waiver of late fee.
If a cardholder continues to pay only the minimum amount due, he/she will fall into a debt trap as interest on the unpaid amount becomes due instantly. Therefore, it is advisable to ignore the minimum amount due and pay the "total amount due" if possible.