What is a statement credit?

In the world of credit card rewards, a statement credit is one of the most beloved benefits. How fantastic is it to run a charge on your credit card and know that at least a portion of it will be covered by your credit card issuer?

If you’re not familiar with the concept and would like to figure out how statement credits work, read on for everything you need to know — including which cards offer the best statement credit benefits.

What is a statement credit?

A statement credit is money that a credit card issuer, like Discover or American Express, applies to your account. It’s deducted from your card balance, but it won’t count toward your minimum payment. For example, if you bought something on your credit card and then returned it for a refund, that refund would be issued as a statement credit. As another example, you may be able to redeem your cash back or rewards for a statement credit to reduce your credit card balance.

The other way you can get a statement credit — and my favorite way — is when it’s a benefit on your credit card. Some credit cards allow you to redeem cash back into credit, while some awesome credit cards issue statement credits for certain categories of purchases.

For instance, if I had a credit card that offered a $20 monthly credit on bookstore purchases (and if it existed, I’d have it!), I’d go to a bookstore every month. In fact, I’d probably spend $30 each month, since I doubt I’d be able to keep my spending under $20 at a bookstore. The hypothetical credit card then would apply $20 to my card balance, and I’d only wind up paying $10 in the end.

How to use a statement credit

Normally, there are no extra steps needed to use your statement credits when they’re part of your card’s benefits. Sometimes, you will need to enroll in an offer — as with dining credits offered by the American Express® Gold Card — but after that, a credit will appear on your account automatically after you make an eligible purchase.

If you’re redeeming your rewards as a statement credit, you’ll need to go through your online account to do so. Note, however, that while redeeming cash back for a statement credit is a fair deal, redeeming your points or miles for it is usually not the best idea. When you do that, your travel rewards can lose a lot of value.

For example, if you redeem your Chase Ultimate Rewards points for a statement credit, the value will be 1 cent per point. It’s more than many rewards programs offer for this type of redemption, but you can get much more with other redemption options. Examples include an estimated 2.3 cents per point through the World of Hyatt program if you transfer your Chase rewards there, according to Bankrate valuations. Alternatively, your points are worth 1.5 cents each when a Chase Sapphire Reserve® cardholder redeems them for travel through the Chase Travel^SM portal.

Some credits will post immediately, while others will require waiting anywhere from a few days to several weeks.

Credit cards that offer annual statement credits

We’ve gotten to my favorite part. Let’s talk about the cards that come with the most attractive annual statement credits.

Best credit cards with annual statement credits

Chase Sapphire Reserve

It’s impossible to talk about credit cards that come with annual credits and not talk about the Chase Sapphire Reserve. Its $300 annual travel credit is the stuff of legend. It’s automatically added to your account each card anniversary and applies to a wide range of purchases.

The qualifying purchases include flights, car rentals, hotel stays, cruises, discount travel sites (including Priceline, Expedia and Orbitz), public transportation (such as trains, buses and taxis), toll bridges, highways, parking lots, garages, timeshares and travel agencies.

As you can see, it’s easy to take advantage of this benefit, which already justifies more than half of the card’s $550 annual fee.

The Platinum Card from American Express

The Platinum Card from American Express is another highly popular travel credit card. At $695 per year in annual fees, it offers a range of statement credits worth over $1,500 per year.

With this card, you can get various credits to enhance your travel experiences, enjoy dining and entertainment credits, fitness-related credits and more. All in all, the Amex Platinum offers more in terms of statement credits compared to the Chase Sapphire Reserve, but these credits are also less flexible.

With the Chase Sapphire Reserve, almost any kind of travel purchase qualifies for a generous credit. That’s not the case with the Amex Platinum, which only offers statement credits for specific types of purchases. Even with the airline credit, you can only choose one airline, and you have to commit to that airline once per year in January. That doesn’t leave much room for choosing the best fares or options for your travels.

American Express Gold Card

As you can see, rewards credit cards mainly issue statement credits for travel purchases. Still, there are other options — for instance, the American Express Gold Card, a foodie’s dream come true.

For a $250 annual fee, you’ll get up to $120 in Uber Cash ($10 per month in Uber Cash, expiring at the end of the month) for rides and eats as well as up to $120 in dining credits ($10 per month, enrollment required) at eligible restaurants or ordering in through Grubhub. That’s $240 per year to spend on delicious food!

The Gold also comes with an up to $100 credit with the Hotel Collection (when booking two or more consecutive nights through the American Express Travel portal).

The bottom line

A statement credit on your credit card is always a joy — it means you’re scoring an awesome perk. Even though it doesn’t count toward your minimum payment, it lowers your balance. And if you get the right credit card, having statement credits on the list of benefits could be great news for your budget.