How Do Credit Card Billing Cycles Work? (And Why It Matters)
The credit card billing cycle is more than a technicality — here’s why understanding it can be crucial for your finances.
February 11, 2022
If you’re a credit card holder, you might know a bit about how to avoid interest charges and other fees. However, you might not have considered your credit card billing cycle and how that can impact your finances. Understanding your credit card billing cycle is a commonly overlooked way to help avoid unnecessary charges and keep your finances in shape.
To give you an advantage over the issue, we’ll go through what a standard billing cycle looks like, the finer details of how it works and why all of this is so important.
What is a billing cycle on a credit card statement?
A billing cycle is the date range which you’re billed for purchases using your credit card. In other words, each charge you put on your credit card between these dates will form part of your balance for that billing period.
For example, when you receive your credit card statement, you might see that your bill began on March 29 and ended on April 27. In this case, the billing cycle would be 30 days long and fall between those two dates. You can also check when your billing period falls by looking at your cardholder agreement.
What’s the difference between a billing cycle and an account balance?
While your billing cycle refers to the period of time your credit card bill accounts for, your account balance refers to the total monetary amount you owe on your credit card. The two concepts are linked because a credit card company calculates an account balance over the billing cycle. But the entire account balance is not due each month.
How do credit card billing cycles work?
Now that we’ve gone through the basics, let’s get into the finer details of how billing cycles work. This is where things get a bit more detailed.
One of the most important aspects to note about billing cycles is that you don’t have to pay off your account balance as soon as your billing cycle ends. Instead, there’s a significant gap between the two dates, which has to be at least 21 days long by law.
This is known as a grace period because it’s the duration you’re “graced” with not receiving charges for not paying — although you can make an early payment if you wish, which can actually help to boost your credit score (more on this later).
The bill you receive includes the purchases you made over the course of your billing cycle, plus any charges you’ve racked up from the previous month — such as late fees, interest charges and foreign transaction fees.
If you rack up charges for not paying your bill or paying it late, these will appear on the following month’s statement, since they will be part of the next billing cycle.
The law dictates that a credit card’s payment date must fall on the same date each month, so once you figure out when it is, you’re covered.
How often does credit card billing occur?
We gave the example above of a billing cycle that’s 30 days long, but that doesn't mean every billing cycle shares the same length. They fall between 28 and 31 days, depending on the credit card issuers and the length of the month.
However, although the Consumer Financial Protection Bureau (CFPB) ensures that the billing cycle period can’t vary by more than four days from the standard date, you can expect some slight differences here.
Why? Different months have different numbers of days, while credit billing cycles must remain consistent, so some variation is inevitable.
For example, if your payment date is always the 25th of the month and you have a grace period of 21 days, the end of your billing cycle would consistently fall on the 5th of the month. But if you have a 30-day cycle and need to count back from the 5th, the start of the billing cycle is going to vary depending on whether it’s February (28 or 29 days), March (31 days) or April (30 days).
So, it’s expected for there to be variation in cycle length as well as your payment due date.
Changing your billing cycle
You can’t directly alter your credit card billing cycle. However, you can move your payment date, which will indirectly change your billing cycle, since the dates between which the billing cycle falls must work backward from the grace period and therefore the payment date.
But a word of caution: Most credit card companies won’t let you change your payment date as often as you want, so use this privilege wisely. You might also have to wait a few months for it to take effect, so if you’re unable to make your payment, it’s not an instant solution.
Why your billing cycle matters
At this point, you might be wondering exactly why we’ve been hyping up billing cycles as an ultra-important thing. That’s because you can apply this knowledge to make a difference to your credit card account.
Know when to pay
Assuming you have the funds needed to pay your bill, knowing when your bill cycle falls should mean there’s no reason to make a late payment. All you have to do is remember exactly when the last day to pay your bill is and ensure you don’t miss it.
However, another way to make sure you don’t miss your payment date is to set up automated credit card payments straight from your bank account. That way, you won’t even have to think about it.
Time your purchases
Once you know the dates your billing period falls within, you can try budgeting around them to help avoid late fees and interest charges.
If you know you want to buy a new couch worth $1,000 and you also want to book a vacation for $2,500, you might end up with a hefty bill you can’t afford to pay at the end of the month.
But if you know that your billing cycle will end on the 25th, you could try to time your purchases around this by buying one item on the 24th and one on the 26th. That way, the two purchases would fall into two different billing cycles.
Improve your credit score
Remember how earlier we mentioned that making early payments might help you to improve your credit score? Now, it’s time to explain why.
Credit bureaus (TransUnion, Equifax and Experian) only report your account balance at the end of the billing cycle. This matters because one of the most important factors these bureaus account for is credit utilization: the percentage of your available credit (your total credit limit across all credit cards) that you used.
The lower, the better — but you can lower your credit utilization by paying some of your balance off before the last day of the billing cycle. Make a habit of taking advantage of that as often as you can.
Master your credit card billing cycle (and go beyond)
The best way to master your credit card billing cycle is to know your billing due date and apply these strategies to making payments. Check your credit card statements regularly, keep track of when your billing cycle falls, try to make payments before your due date and time your purchases so you can pay off your bill in full whenever possible.
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