Credit card billing cycle: What it is, how it works, and why it matters

The billing cycle is one of the most vital, yet misunderstood, parts of credit cards. In order to maximise the benefits of your card, track payments, and avoid interest, you must first understand how this cycle works. Let's break it down in a way that is understandable.

What is a credit card billing cycle and how does it work?

The financial institution defines "billing cycle" as the period of time that all of your credit card transactions are created and recorded. Generally, the billing cycle is typically 28-31 days long, depending on the financial institution. At the end of the cycle, you will receive a credit card statement summarising:

• All cash advances, EMIs, purchases, etc.
• The minimum amount and total amount you owe
• The date payments are due

Being able to understand your billing cycle allows you to make better decisions, manage your payments effectively, and avoid unnecessary interest fees.

Credit card statement vs due date: Understand the difference

When your credit card provider generates the bill at the end of the payment cycle, that is your statement date. Payments must be made before the due date, or you may incur penalties or interest. The period that exists between these two dates is usually an 18-21 day grace period. So if you charge on your credit card within that timeframe and you pay off the entire amount you owe, you won't have to pay any interest.

How does the credit card billing cycle impact interest-free periods?

Effectively utilising the interest-free credit term necessitates knowing your monthly cycle. Let's say your cycle runs from June 1 to June 30, the due date is July 20. On July 1st, if you pick up a purchase which means the transaction falls into your next cycle, and the amount might not be due until about August 20 - You have maximised this interest-free credit term to 50 days.

To make use of the longest payback time, attempt to make larger purchases close to the start of a new cycle.

How EMI reflects in the credit card billing cycle?

Any large purchase that is converted to EMI, usually means the payment will not show up on your first EMI until the new cycle begins after the new cycle. The monthly statement you receive will reflect the full amount of the EMI payment as well as reflect and other purchases. With new purchases as well as recurring EMI withdrawals, it is important to know your payment cycle, as well as ensuring your credit limit will cover both items.

What happens if you miss your credit card payment due date?

If the due date is missed, there could be:

• Delinquent interest rates (often 36-48 percent interest annually)
• Late payment fees
• Negative impact on your credit score
• Loss of future interest-free purchase times.

Tips to manage your credit card billing cycle smartly

• Consider setting calendar alerts or auto-debit to avoid this situation.
• Schedule major purchases quickly after the new billing cycle begins.
• To avoid interest, pay your total balance before the due date.
• Keep your credit usage ratio below 30%.
• Review your monthly credit card statement for anomalies or unusual spending habits.
• Avoid unnecessary credit card inquiries that could hurt your credit score.

In conclusion, the billing cycle is more than a list of dates; it is a resource for managing debt, mindful spending, and getting the most value from a card. You can really use a credit card for easier spending if you understand it fully such that it is an offensive weapon instead of a liability.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.