Credit cards are one of the most accessible credit-building tools in your arsenal, but rewards are also part of the appeal. A statement credit is one way to redeem rewards you’ve earned.
If you look through your statement balance and find that money was put back into your account, that’s a statement credit.
Knowing how you earned that money can help you take advantage of your credit card’s rewards system in the future.
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.
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. 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 come with responsibilities, but they have their perks.
Consider using statement credits put on your account to lessen your balance. Or look into the various rewards your card issuer offers.
You may even be among the 23% of Americans who didn’t redeem any of your stockpiled rewards in 2022. So you might be missing out on rewards that you could use for some of your favorite services.
When shopping for a new card, you may want to look closely at the points, cash back, or miles involved. 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. If you’re an investor or someone interested in student loan refinancing, at least one card is geared toward those preferences.
The Takeaway
What is a statement credit? It’s a reduction in a credit card balance. Many credit cards offer statement credits as one way to redeem travel, cashback, or other rewards.
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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOCC0623001
