There's no two ways about it: Australia is a credit card country. According to the Financial Counsellors' Association of Western Australia, our country has the world's second highest rate of personal credit, with 55 percent of Australians holding a major credit card, and more than 8 million owning more than one.
So we clearly know how to use a credit card. But how well do we know some of the other basics around being a cardholder? For instance, how many of those 8 million even know how to read their credit card statement?
Just in case you fall into this group that can't make heads nor tails of their monthly statement, we've provided a simple guide for the important bits of the paper and what to take away from them.
The statement period
The statement period covers the purchases and charges during the span of what is usually around 30 days, though it varies depending on how many days there were in the month, the number of business days and when you opened your account.
Between the end of the period and the payment due date, you have a 'payment window', during which you need to pay the minimum amount at least if you don't want to be charged a late payment fee. If you want to take advantage of interest-free purchases, you'll typically have to pay the full amount.
Note that, contrary to popular belief, the interest-free period of however many days (you hopefully carried out a credit card comparison to get the best deal for you) doesn't apply to the day you bought that Dior handbag or that expensive new suit. It actually refers to the number of days from the beginning of your statement period to the payment due date. That means, depending on when you bought those items, you might only have a few days of no interest.
Typically, the statement will show the essential payment information in a separate box on the statement. Here, you will likely see information like the payment due date, the closing balance of your credit card (i.e. how much you owe in total) and any overdue payments you need to carry out. You'll want to pay the latter off as quickly as possible to prevent any negative repercussions to your credit score.
The account summary is all about your closing balance. You can think of it as an explanation of how you got to the total you're sitting on. It will list your:
- Opening balance, or how much you owed at the very start of the statement period
- Payments and other credits, or any total that has been credited to your account during the period
- Purchases, cash advances and other debits, or everything charged to your card
- Interest and other charges, or the sum charged to your card from fees and interest
- Closing balance, the total once all of these have been added up
Regarding the third point on that list, your statement will also list details of each transaction charged on your card during the period separately. It might be a good idea to review these and make sure nothing is out of the ordinary – if you have less money to put into your savings account this month, perhaps an error was made. If the account has secondary cardholders, the transaction list should also note which card made the particular purchase, making it easier to find the culprit of some extravagant spending.
This is usually listed under the account summary or under the transaction list. It's simply the most that you can possibly charge on your credit card – you didn't think they were bottomless wells of credit, did you? Meanwhile, your available credit is simply the remaining portion of that sum you haven't used yet. If you want, it's possible to change your credit limit, though you can't reduce it below your balance or your minimum set by your credit provider.
This part is self-explanatory – if you have a rewards card, this part will inform you how much you've earned for the month and in total. When they compare credit cards, some buyers will solely look at the rewards they offer to decide which to get. If this sounds like you, then you'll want to look at this section to see how far along in your goal you are.
Minimum repayment warning
Since June 2012, all credit card statements have been legally required to carry this section. It tells you two things:
How long it would take to pay off your closing balance if you only made the minimum repayment, as well as the interest you'd be charged.
An alternative payment amount you could pursue if you wanted to pay off the balance in two years
In essence, this is meant to prevent you from becoming a serial revolver and get you out of debt faster. You might use the information to pay extra each month, or set up automatic payments for the amount so you don't need to think about it.