How to read your credit card statement

How to read your credit card statement

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. 

Payment details/summary

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. 

Account summary

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.

Credit limit

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. 

Rewards points

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.

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Learn more about credit cards

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

How do you cancel a credit card?

It’s important to cancel your old cards to avoid any additional fees. Unless you’re doing a balance transfer, you’ll need to pay the outstanding balance before you cancel your credit card. If you’ve opted for a card with reward points, make sure you redeem or transfer the points before you close your account. To avoid any bounced payments and save yourself an admin headache, redirect all your direct debits to a new card or account. Once you’ve done all the preparation, call your bank or credit card provider to get the cancellation underway. Once you receive a confirmation letter, destroy your card and make sure the numbers aren’t legible.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.