Credit cards are excellent assets to make cashless transactions. When you use your credit card to make a purchase, it is like taking a short-term loan
Credit cards are excellent assets to make cashless transactions. When you use your credit card to make a purchase, it is like taking a short-term loan from the credit card issuer. You can make several purchases within your credit limit, and you receive a credit card bill at the month-end. If you pay your bill before the due date, the company does not charge any interest rate on your borrowed amount. You must have some basic knowledge to get the maximum benefit from your credit card, and understanding your billing cycle is the most useful place to start.
Just as its name suggests, understanding your billing cycle can help you save big in late payment charges and interest fees. So, read carefully.
Understanding the Credit Card Billing Cycle
Typically, your credit card billing cycle may be 27 to 31 days long. It is the number of days for which the credit card issuer generates your bill. Each transaction you make using your credit card during the billing cycle reflects in the following credit card bill. For instance, if your bill is generated on the 5th of each month, your billing cycle will begin from the 6th of the last month to the 5th of the current month. During this time, all the transactions you make using your credit card show up in your bill. These include everything from credit card payments, cash advances, and EMIs on your card.
Understanding the Due Date
When you receive your statement, you get a payment due date, which is the last date by which you must pay the outstanding balance on your credit card. Most companies give you 21-25 days extra after the date of bill generation. You must pay your bill before this date. If you miss this date, the credit card company will levy late payment penalties, interest rates, and other charges. However, if you make your credit card online bill payment before the due date, you don’t need to pay any penalties or charges. You pay only the amount you spent using your credit card.
Understanding the Minimum Payment
The minimum payment is the amount you must pay before the due date to sustain your credit card account. If you cannot pay your credit card bill in full, you can make your minimum payment and continue using your credit card. The minimum payment is a small percentage of your outstanding bill amount, paying which can save you from late payment charges. Once you pay this amount, the bank will levy interest charges on the remaining amount. If left unpaid for several months, these charges may accumulate, and it may become harder than before to pay the full bill amount.
How Does the Billing Cycle Work?
Here’s how a credit card billing cycling work:
- The billing cycle of your credit card begins from the day you get your credit card. However, the balance is zero on that day.
- If you transfer the balance of your old card to the new card, you will see balance transfer fees and charges in your statement.
- Once your credit card gets activated, each transaction you make using your credit card will be recorded in your statement. The credit card issuer will add every expense you make to your credit card bill.
- If you use your credit card to make any cash withdrawals, their charges will show in your statement.
- Any payment refunds or waivers will be deducted from your total bill amount.
- Any transaction you make after the bill generation date will be added to the next month’s bill.
Effects of Billing Cycle on Your Credit Score
Although the billing cycle may not impact your credit score directly, any missed, delayed, or partial payments can reduce your credit score. Any missed payment may stay on your credit report for as long as 2-3 years. Since your credit card issuer will report each activity to the credit bureaus, any mistake, either intentional or unintentional, takes a toll on your credit score.
As you pay your credit card bill, your available credit goes up, and the balance goes down. Pay attention to your credit card statement for the due date and minimum payment. Try to pay your bills in full every month to maintain good credit. However, if that’s not possible, try to pay at least the minimum amount.