How do credit card billing cycles work: Credit cards operate on billing cycles. It is therefore important to understand billing cycles when planning a financial strategy. There is no need to be confused by the terminology surrounding credit card billing cycles.
How does a billing cycle work?
The billing cycle may seem specific to credit cards, but it is likely something you deal with on a regular basis, as it is common to have utility accounts, subscription services, and, of course, financial accounts such as loans, mortgages, and so forth.
There is a billing cycle every time a recurring service is billed. The charges for your account are reflected on the billing statement that you receive after the end of your billing cycle.
A billing statement for a credit card typically states:
- Balance from your previous transaction
- During the billing cycle, any payments and purchases made will be billed
- If you owe any fees (late fees, balance transfer fees, etc.), please contact us.
- In the case of outstanding balances, the interest is charged
- You will now have a new statement balance based on your recent purchases, payments, interest and fees
- Payment requirements and the due date
Although you may close your account, you will still receive a monthly statement as long as there is a balance left on the account.
You should also keep in mind that billing cycles can vary depending on their length. There are some billing cycles that begin and end on a date selected by the creditor or on the day the account was opened. Nevertheless, some may very well be scheduled on a monthly basis — beginning on the first day of the month and ending on the last.
There are times, though, when the billing cycle of a credit card is shorter or longer than typical. Credit card billing cycles aren’t limited in length, though they usually last between 27 and 30 days. You may have fewer days in your billing cycle than a regular month at times, especially if the cycle ends on the weekend and your issuer pushes the cycle’s end date as a result.
Confusing aspects of billing cycles
A billing cycle can be understood only when you fully understand the difference between closing dates (also known as statement dates) and payment dates.
If you are not clear about these two aspects of billing cycles, you may be mistaken about how much time you have to pay your balance without interest. Statement dates are the dates on which you receive your billing statement.
There are usually at least 21 days between your statement date and the date by which you must pay your bill. Unless you pay off any new charges before the payment date, your next statement will reflect any charges after the statement date.
If you want your credit card account to remain in good standing, you must at least submit the minimum payment required by your credit card company. If your financial situation allows, you can negotiate your payment date in some cases.
Grace periods and intro APRs
You can better understand how grace periods, introductory APRs, and billing cycles relate once you understand how billing cycles work. The grace period occurs between the payment due date and the statement due date if offered.
If you pay off your balance before the grace period ends, you’re effectively interest-free, since interest isn’t added until your next payment. Grace periods may not be available for all transactions. Cash advances, for example, are almost always charged interest. Grace periods for credit cards are specified in your credit card agreement.
Facts about credit card billing cycles
You should now have a better idea of credit card billing cycles and how they affect your finances, but there are a few things you should keep in mind. A billing statement can have errors due to identity theft and simple accounting errors.
Therefore, you should always review your statement in a timely manner so that you know exactly what you owe. You can dispute errors by sending an email within 60 days of learning of erroneous charges, or by calling customer service. It is also possible to notify your credit card issuer of a stolen or fraudulently used card. Credit bureaus receive credit reports at different times.
On your statement closing date or close to it, some creditors report to credit bureaus. When applying for a loan or simply trying to improve your credit, this knowledge can be useful. The reported credit utilization ratio will be lower around this time if you make payments. The first and foremost consideration in making any payment decision should be your finances, but if your financial situation allows, this can be a good opportunity to plan strategically.
