Find everything you need to know about Billing Cycle, and avoid any unpleasant surprise!
Did you know that you that every credit card has a billing cycle? But do you know what it actually means and why it’s important to know yours? Well, that’s what we are going to talk about!
Get to know what it is and how it works, so you know how to master your credit card usage! Also, if you want to check out more financial tips on our website, you can click on this link!
What is a Billing Cycle?
It is the periodic timeframe between the closing dates of your credit card statements. It refers to the interval during which your credit card transactions are tracked and accumulated to determine your final bill amount. It typically lasts around one month, but can vary slightly depending on the credit card issuer.
How Does It Work?
Understanding the different phases a billing cycle consists of is essential to managing your credit card effectively. They are:
- Transactions: throughout your billing cycle, every purchase you make using your credit card gets recorded;
- Statement Closing Date: this marks the end of your current billing cycle. All your transactions up to this date will be reflected on your next credit card statement, this includes any previous balance carried over from the prior month;
- Statement Generation: within a few business days of your closing date, you’ll receive a credit card statement outlining your total balance, minimum payment due, and other relevant information;
- Grace Period: after the closing date, there’s usually a grace period (often lasting up to 21 days). This window allows you to pay off your entire statement balance without incurring any interest charges. It’s financially advantageous to pay your balance in full during this period;
- Payment Due Date: this is the deadline by which you must make at least the minimum payment on your outstanding balance to avoid late fees and potential credit score damage;
- New Billing Cycle: once the payment due date passes, a new billing cycle begins, and your credit card transactions start accumulating again.
How Does Your Billing Cycle Affect Your Credit Score?
The duration and timing of your billing cycle don’t have a direct effect on your credit score. However, knowing the end date of it can be significant because credit card companies typically report your account information to the credit bureaus around that time. Actions you take within a billing cycle, like making new purchases, transferring balances, or paying the minimum amount due, will be reported to these bureaus. This reported information appears in your credit reports, which are used to calculate your credit scores.
Timely payments are one of the most significant factor influencing your credit score. Missing payments or making late payments can significantly damage your creditworthiness. Another factor that can impact your score is your credit utilization ratio. This ratio is calculated by dividing your account balance by the credit limit shown on your credit report. A high ratio can negatively impact it. Generally, it’s best to keep it under 30%, and even lower if possible.
Can You Change Your Billing Cycle?
Your credit card company may let you change your bill’s due date, automatically shifting the billing cycle. While not all credit cards offer the flexibility to change it, most of them do. Here’s how you can change it:
- Contact Your Credit Card Issuer: the most straightforward approach is to contact your credit card issuer’s customer service department directly. They’ll be able to confirm if changing it is possible and guide you through the process;
- Be Prepared to Wait: changing it might not be immediate. There might be a waiting period before the new cycle takes effect;
- Consider the Impact: make sure you understand the potential implications before making any changes.