Ways of tracking credit card spending

Quick insights

• Understanding and tracking your credit card spending is important for your financial health and may help improve your credit score.
• Various tools and strategies, such as online banking, mobile apps and manual tracking can assist in managing your spending.
• Understanding the nuances of credit card payments, including transaction and posting dates, can help avoid late fees and improve accurate tracking of your spending.

It can be easy to overspend on a credit card if you don’t keep track of your spending. Let's take a look at how tracking your spending not only can help prevent financial surprises but also can help improve your credit score and overall finances.

What is credit card spending and why it is important

Credit card spending refers to the purchases and payments made using your credit card. Responsible credit card spending can help build a positive credit history, leading to higher credit scores and more favorable loan terms in the future. Using credit responsibly can help you earn credit card rewards points on everyday purchases without overspending. On the other hand, irresponsible spending on purchases you cannot afford can lead to debt accumulation, high interest charges and negative impacts on your credit score.

Ways of tracking your credit card spending

There are a few methods for tracking your credit card spending, including:

• Online banking: Online banking allows access to your transaction history and current balance, which can offer a quick way to track your spending.
• Credit card apps: Your credit card’s mobile app can offer features like spending categorization and budgeting tools, providing a more detailed view of your spending habits.
• Spending alerts: Setting up credit card alerts for every transaction can help detect unauthorized charges and keep you aware of your spending in real-time.
• Credit card statement: Regularly reviewing your credit card statements can help identify potential discrepancies or errors.
• Manual tracking: Manual tracking methods, such as spreadsheets, allow for personalized budgeting and spending tracking, catering to individual financial needs and habits.

Understanding the credit card payment process

When you swipe your credit card at a merchant, the payment terminal connects to the merchant's bank to request authorization for the transaction. The merchant's bank then forwards this request to the credit card network (such as Visa or MasterCard), which in turn sends it to the card issuer (your bank) for approval. Your bank checks your available credit and either approves or denies the transaction. If approved, the transaction is authorized and a temporary hold is placed on your credit for the amount of the purchase. This process typically takes just a few seconds. The transaction is then sent back through the network to the merchant's bank and finally to the merchant, confirming the payment has been authorized.

Credit card payments typically post to your account within 1-2 business days, but this can vary depending on the credit card issuer and the method of payment. Weekends, holidays, and the time of day the payment is made can affect the posting time. Once the merchant finalizes the transaction, the actual transfer of funds occurs, and the temporary hold is converted into a posted transaction on your account statement. Merchants typically finalize transactions at the end of the business day, but this can vary, especially over weekends or holidays.

Late payments can result in fees, increased interest rates, and negative impacts on your credit score. Setting up automatic payments or reminders can help ensure payments are made on time and in full, potentially helping you maintain or improve your credit score. It's also important to monitor your account regularly to ensure that all transactions are accurate and to identify any unauthorized charges early. This proactive approach not only helps in managing your finances better but also aids in maintaining a healthy credit profile.

Deciphering credit card dates: Transaction date vs posting date

The transaction date is when you make a purchase with your credit card, and the posting date is when your credit card issuer processes this transaction. These dates often differ due to processing times, merchant practices, and non-business days like weekends or holidays. For example, if you buy a laptop on a Saturday (transaction date), the posting date might be the following Monday or Tuesday, depending on when the merchant processes the transaction.

This difference between dates affects your credit card account in several ways. Your available credit may not immediately reflect the purchase until it is posted, which could temporarily impact your spending capacity. Additionally, interest charges on purchases usually begin accruing from the posting date, depending on your card's terms. The grace period, which is the time you have to pay off your balance in full to avoid interest charges, also starts from the posting date.

The role of pending payments in credit card management

Pending payments are transactions that have been authorized but not yet posted to your account. These can be viewed in your online banking portal or mobile app, usually listed separately from posted transactions.

Pending payments reduce your available credit but do not affect your balance until they post. Being aware of pending payments can help avoid overspending and ensure accurate tracking of your spending. For example, if you have a credit limit of $5,000 and a pending payment of $500 for a hotel booking, your available credit will temporarily drop to $4,500, even though your balance remains unchanged until the transaction posts.

The bottom line

Tracking your credit card spending and understanding the payment process can help you gain better understanding of and control over your credit card usage. Consider setting up alerts for every transaction to monitor spending in real-time, scheduling automatic payments to avoid late fees and interest charges and regularly reviewing your statements to identify discrepancies or fraudulent charges. These proactive measures can help keep you informed about where your money is going, which in turn can help you use your credit more responsibly.