How Does a Credit Card Billing Cycle Work?

Every credit cardholder needs to be familiar with a few key terms and processes in order to understand how this financial instrument works.

The billing cycle is an important part of the jargon and refers to the period of time between the end of one billing period and the next billing statement date. 

Billing cycles typically range between 28 and 31 days. At the end of each billing cycle, cardholders are given a certain amount of time to make their payments.

This is referred to as the grace period, and customers who cover their balances during this time don’t incur interest.  

Definition and Example of a Billing Cycle

Credit cards are among the most popular financial instruments, allowing you to borrow money from a lender and then pay it back over time. If you use a credit card responsibly, you can enjoy a range of financial benefits.

That’s why it’s important to familiarize yourself with the billing cycle. 

The credit card billing cycle is the period of time between the last statement closing date and the next billing statement date. It covers all charges made during that period of time, which is determined by the card issuer and doesn’t exceed 31 days.

Each month, your credit card issuer will send you a bill for all purchases made during the billing cycle. With most issuers, you’ll get a grace period between when the statement is issued and when your payment is due. 

Let's say you start using your credit card from the first of the month. In this case, the billing cycle for your credit card starts on that day and ends 28 to 31 days later. Your payment is due on the date specified by your issuer.

If you fail to make the payment on time and in full, you'll be charged interest on the outstanding balance. The interest will show on your next billing statement.

How Does a Billing Cycle Work?

The date chosen for the start of the billing cycle depends on various factors. For example, it can begin on the day chosen by the card issuer or when the account is opened.

The billing statement includes your opening balance, transactions made since the last statement, and the closing balance.

The due date for the payment is displayed on your statement. If your issuer offers a grace period, the bill must be delivered to the customer no later than 21 days before the credit card payment due date.

Most issuers add an additional few days for the mailing and printing of the statement. Cardholders cannot be charged interest during this period.

Your credit card issuer will report your payments to the credit bureaus. Making payments on time and in full will contribute to building a good credit score. 

When cardholders fail to make the payments and are charged interest, the interest rate is based on their APR or the annual percentage rate. The APR can vary depending on the type of card you have.

Generally speaking, the higher the APR, the more expensive it is to carry a balance on your credit card.

Understanding your credit card billing cycle and the due date can help you budget and avoid late fees. Failing to make monthly payments can also result in the loss of your grace period and interest on new purchases and affect other aspects of your financial health.   

How Your Billing Cycle Affects Your Credit Score

Your credit score will suffer if you don't pay your bills on time. This is because late payments are reported to the credit bureaus and can stay on your credit report for up to seven years. So, if you're trying to improve your credit score, it's important to cover your statement balance each month.

What Is a Credit Card Minimum Payment?

Now that we know how credit card billing cycles work, it’s time for a closer look at monthly payments. The minimum payment is the lowest amount of money that you can pay on your credit card bill each month.

This number is typically calculated as a percentage of your total balance and is usually around 2-5%. For example, if your total balance is $100 and your minimum payment is 3%, you owe at least $3 to keep your account in good standing.

However, if you only make minimum payments, it will take you longer to pay off your debt, and the issuer will keep leveraging interest on the remaining amount. Furthermore, making minimum payments during the credit card cycle date can hurt your credit score.

Can You Change the Dates of a Billing Cycle?

Some banks and issuers may allow you to change your credit card billing cycle dates. For example, if you get paid on the first of the month but your credit card bill is due on the last day of the month, you may want to consider changing your billing cycle.

While some card issuers that allow billing cycle changes don’t charge additional fees, others do. Some issuers may charge around $10 for changes to your billing cycle.

If you're considering changing billing cycles for credit cards, it's important to weigh the pros and cons. On the one hand, you may save money on interest charges by aligning your billing cycle with your pay cycle. On the other hand, you may end up paying more in fees if your issuer charges for this service.

What Are Late Fees?

Late fees on credit card billing cycles can vary depending on the issuer. However, most late fees are around $25-$35. If you're trying to avoid late fees, it's important to make your minimum payment by the due date.

The Bottom Line

Understanding your credit card billing cycle is important for budgeting and avoiding late fees. Your billing cycle can also impact your credit score, so it's important to make your payments on time. If you need to change your billing cycle, some issuers will allow you to do so for a fee.