A statement credit is money that gets credited to your credit card account, reducing the amount you owe. It can be earned through various means, including returns, price adjustments, reward redemptions, or sign-up bonuses. Put simply, it’s the opposite of a charge to your account. It lowers your balance instead of increasing it.
Knowing how you earned that reduction in your debt can help you take advantage of your credit card’s rewards system in the future.
Key Points
• Statement credits reduce credit card balances.
• Credits may come from returned items, rewards, and sign-up bonuses.
• Credits appear as negative amounts on statements but are not usually classified as a debt payment.
• Most rewards, like cash back, are not taxable.
• Sign-up bonuses without required spending may be taxable.
What Is a Statement Credit?
Credit card companies use a statement credit to issue a credit to your accounts, such as cash back or other rewards you have earned. Essentially, you receive money from your card issuer for a specific reason.
Finding documentation of your statement credit varies among credit card companies. Generally, though, you will see it on your monthly statement under transactions or account activity.
If you check your statements online, you’ll probably see the credit appear in green text and contribute to the statement balance.
Regardless of the format, a statement credit has a minus sign in front of the cash amount, thus decreasing your revolving balance.
How to Receive Statement Credits
There are a few ways a statement credit might apply to your account. A common reason is through a return.
If you have ever returned an item you bought using your credit card, the retailer will probably refund the money borrowed from your card issuer. You’ll receive a statement credit that matches the price of the returned item.
Other than returns, ways you may receive a statement credit include:
• Shopping benefits. Some card providers offer discounts or statement credits for shopping with specific merchants.
• Travel credits. Card providers may offer annual statement credits to pay for eligible travel expenses like a luggage fee or plane tickets.
• Rewards. Among the different types of credit cards are rewards options. Card providers that offer cash back, points, or miles may let you redeem them in the form of a statement credit.
Statement Credits vs. Cash Back
Your credit card company gives you options when you sign up for a rewards credit card. One choice may be cash back or statement credits.
Cash back sounds simple enough, but it doesn’t always mean you’ll get direct money. Instead, your issuer may offer a cash reward in the form of a credit put on your account. Occasionally, they may send you a physical check or deposit the money in your checking account.
You earn cash back as a reward for using the credit card. It is a percentage of the money spent on purchases using the card.
In comparison, a statement credit reduces your credit card balance. Carrying a high balance between periods could lead to a high credit utilization ratio, which shows the amount of available credit a person has. That can result in a lower credit score over time.
Are Statement Credits Taxable?
The type of credit or reward you receive determines whether it’s taxable. If the credit card holder spent money to earn the reward, they usually don’t have to pay taxes on it. If they receive the credit without any spending, the reward may be taxable.
For example, an individual receives money back on her account after returning a chair she purchased online. That credited amount would not be taxable.
Cashback earners who engage in programs for points, like travel rewards, also generally avoid taxation.
The primary instance where cardholders face a taxable reward is with sign-up bonuses.
If they did not have to purchase anything to earn the bonus, it’s probably taxable. The taxation may apply regardless of how the credit card company issues the bonus, whether it’s in cash or airline miles.
Using Your Rewards Wisely
Credit cards have their perks, but it’s smart to use the credit card responsibly and the rewards wisely.
Consider using statement credits put on your account to lessen your balance (but keep in mind that statement credits aren’t usually considered the same as making a payment to your account, even though both lower the amount owed). Or look into the various rewards your card issuer offers.
When shopping for a new card, you may want to look closely at the points, cash back, or miles involved. For instance, how are the rewards offered, how are they redeemed, is it better for you to get a card with consistent points across all purchases or increased rewards in certain areas?
Think through which rewards best fit your lifestyle and interests. If you want to see the world, you may want to get a card that optimizes travel benefits. Trying to pay down your debt? Cash back applied to your balance could be the way to go.
Recommended: Understanding Purchase Interest Charges on Credit Cards
The Takeaway
A statement credit is a reduction in a credit card balance. It could result from an item you returned or from the redemption of travel points, cash back, or other rewards. It’s important to note that some kinds of statement credits, such as a sign-up bonus, could be taxable.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
How do credit card statement credits work?
Statement credits are a way that you get money credited back to your account. They can lower your balance and may reflect an item that was returned, cash back or other credit card rewards, or the application of a sign-up bonus.
What does an offer for a $400 statement credit mean?
Typically, once you spend the amount required to qualify for a statement credit, the amount is tallied against your balance. So if your balance was was $1,000 and you had a $400 credit, that means you’d now have a balance of $600. Note, though, that this usually doesn’t count as a payment to your account. You should still go ahead and pay at least the minimum owed.
Is a statement balance what you owe?
Your credit card statement balance shows what you owe at the end of a given billing cycle, which is typically between 28 and 31 days long. The balance reflects purchases, fees, interest, and any unpaid balances, with payments or credits deducted, too.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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