How to read your credit card bills

When was the last time you read through your credit card bill? How confused were you by the time you finished?

Very? Here's some help.

A credit card statement or a credit card bill usually shows the elements listed below:

~ A snapshot of your credit card number (a 16-digit number that can begin with '4' or '5'), the statement date, the date on which your payment is due, the total amount due and the minimum amount due.

~ Your account summary. This contains detailed information about the purchases you made before your bill was prepared; that is, the statement date.

You will also find various other items like your balance payment you have to make from the previous month, the payment you made on your last bill, interest charges applied on the payment you owe your credit card provider (if any), late payment charges (if any), service tax and cash advances (if any).

The bill also contains your credit summary. This summary mentions details such as your total credit limit, available credit limit, cash limit and available cash limit on your account.

Available cash limit = Total cash limit - Cash amount withdrawn.

For instance, if your total cash limit is Rs 4,000 and you withdraw Rs 2,000 on it, your available cash limit will be Rs 2,000.

Let us now look at each of these terms so that you can navigate easily through your next credit card bill statement.

Statement date

This is the date on which your card issuer prepares your bill. A statement of your purchases during one billing cycle is created and mailed to you on the same day.

Billing cycle and billing date

The billing cycle is the period between two statement dates; normally, a billing cycle has 30 days.

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On the billing date, all the purchases you made using your credit card during the previous 30 days are added and billed to you. This information, however, is not printed on the bill statement. Let me explain:

Let's say, you made purchases worth Rs 7,000 in the last 30 days. Your bill will list the occasions on which you used your card and where you used it. It will not list what you purchased. For example, it may say Crosswords -- Rs 500, but it won't say if you spent that money buying books or music or both.

Now, let's also say your total bill the previous month was Rs 5,000. Since you were running a little short of cash, you paid only Rs 2,000. This will reflect as 'Payment made' in your credit card bill.

Hence, your bill this month will be Rs 10,000 (Rs 7,000 + Rs 3,000) plus interest charges on this amount. Since you have brought forward the amount of Rs 7,000 (this is known as revolving credit), interest will also be charged on fresh purchases. In addition, you will also be charged a late payment fee for not clearing the previous month's bill before the due date.

However, no interest is charged on fresh purchases if you have clear your bills on time.

If your billing date is March 28, then your statement date will be March 29.

Payment due date

This is the day on or before which your payment should reach your bank or credit card issuer. Otherwise, they levy late payment fees of Rs 300 or 30 per cent of minimum amount due, whichever is more. This means you will have to pay a minimum late payment charge of Rs 300 if you miss your payment due date.

Total amount due

Let's say you made purchases worth Rs 10,000 in the month of January on your credit card and paid only Rs 8,000 before the due date. In this case, the balance amount of Rs 2,000 will be added to your next month's statement.

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If you made fresh purchases worth Rs 2,000 in February, then your bill statement for this period will have the total due of Rs 4,000 plus the interest charged on your previous outstanding amount (Rs 2,000) and on fresh purchases (Rs 2,000).

Minimum amount due

This is the minimum amount you must pay after receiving your statement every time. Usually, this amount is three to five per cent of your total amount due. A smaller part of this amount goes towards repaying the principal amount and the bigger part goes towards financing interest charged on it.

Let's say, for instance, that your total amount due is Rs 10,000 and your minimum amount due is Rs 1,000. If you make a payment of Rs 1,000, then Rs 800 will go towards interest charges and the remaining Rs 200 will go towards reducing the total amount due (It's like the EMI on your loan, where your EMI partly pays your interest and partly pays off your principal amount).

Do remember, however, that this split between the interest amount and the principal amount differ from bank to bank.

In the next month's statement, the total amount due will be Rs 10,000 less Rs 200 (the amount that went towards payment of principal), that is Rs 9,800. This, of course, is assuming you have not used your credit card to buy anything in the interim.

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However, if you make purchases worth Rs 2,000 before the next billing date, then interest will be charged on Rs 9,800 plus Rs 2,000, that is Rs 11,800.

Previous balance

This is the amount you have not paid on your previous bill; as a result, it is carried forward to the next month's bill.

Assume the total amount you have to pay in the month of January is Rs 5,000. But you have paid only Rs 3,000. The next bill that you will receive in February will reflect the unpaid amount of Rs 2,000 (the total you owe your credit card company minus the payment made).