Credit Card Billing Cycle - How it Works

 

A credit card comes with a lot of jargon, such as minimum payments, late fines, due dates, grace periods, billing dates, etc. Confused as to what each phrase means? To get the most out of a credit card, a cardholder must be familiar with all of its terms before using it. Lack of understanding may prevent you to get the most out of all the credit card benefits. Learn everything there is to know about the credit card billing cycle in this article.

What is the billing cycle?

At the end of the billing cycle, you receive a monthly credit card statement that lists all of your transactions that occurred during the billing cycle. During a billing cycle, you are given a month to use your credit card’s limit to pay for the transactions. If, for instance, you receive your credit card bill on the first of every month, your credit card billing cycle would begin on the first of the previous month. Depending on the payment card, the billing cycle may vary.

The billing due date is the day after the end of the billing cycle when you receive your credit card statement. 

You get a grace period of 15-20 days after the billing due date that you can use to clear the credit card outstanding amount without any interest charges. Once this grace period is over, you will have to bear a rate of interest on the outstanding amount. 

How does the billing cycle work?

The day your credit card is activated is the first day of the billing cycle. You have one month to use your credit card’s limit before receiving your credit card statement. You have a grace period of 15 to 25 days during which you must make your payment. The grace period and your billing cycle are both included in the interest-free period for credit cards, during which no interest will be added to the amount owed. You will be charged a late payment fee in addition to interest costs following the interest-free period. By making the minimum payment due, you can avoid the late payment fees.

 

What is the minimum payment?

You receive a credit card bill following the billing cycle, from which you might deduct, say, the minimum payment requirement of 5% to avoid late payment fees. However, you will be charged interest on the remaining amount if you carry the balance from one billing cycle to the next. You won't always pay the minimum amount due, and in fact, doing so will result in significant fees. Therefore, it is wise to pay the entire amount owed.

Bottom Line:

In conclusion, utilizing a credit card responsibly is crucial for your financial security. Keeping track of your credit card usage and bill payments can become challenging, and during this time, there is a higher than expected likelihood that you will forget to make a payment on time. It is a good idea to sign up for auto-debit services so that your credit card bill is automatically taken from your account on the dates you specify. Another important factor in establishing a solid credit history and sound financial health is maintaining a low credit card utilization ratio. All things considered, you ought to comprehend your credit card billing cycle better.

Additional reading: Tips For Paying Off Credit Card Debt