Credit cards are great financial assets that can benefit the cardholder in more ways than one. While most people are aware of the fact that credit cards can be used to make small or big purchases, and procure short-term finance, not many know that they can also be used to build one’s credit score.
Since credit cards significantly impact one’s ability to get finance, they must be used carefully. Furthermore, many young people who are new to the workforce get confused about the credit card cycle, even after using the card to purchase goods and services. Thus, one must acquire a thorough knowledge of the working and concepts related to credit cards.
One of these concepts is the credit card billing cycle. It’s important to understand how the billing cycle of your credit card works, as it helps you in financial planning. The complete knowledge of your credit card billing cycle allows you to use your card for achieving maximum benefit. In this article, we will explore in-depth everything there is to know about the credit card cycle.
What is a Credit Card Billing Cycle?
A credit card billing cycle is basically the period of time for which your credit card bill is generated. It starts on the day of one billing statement and ends on the next. Let’s understand this with an example. If your credit card statement is generated on the 2nd of every month, it means your billing cycle began on the 3rd of the previous month and continued till the 2nd of the current month. All transactions that you make on your credit card during this interval will reflect in your monthly credit card statement. This includes all purchases, credit card payments, cash withdrawals, and also existing EMIs on your credit card.
What you Should Know About the Billing Cycle
The duration of credit card billing cycles can differ from 27 to 31 days. The length of your billing cycle differs based on the type of credit card and the issuer of the card. The day your credit card gets activated, your billing cycle starts, and your credit card bill might include upfront fees such as joining fees (if applicable).
Read also: 5 WAYS TO PAY OFF YOUR CREDIT CARD BILL FASTER AND HASSLE-FREE
All transactions that you make using the credit card such as purchases, cash withdrawals, account fees, and EMI payments are added to the credit card bill. On the contrary, the amount that’s paid back to your credit card is subtracted from the bill. These could include cashback on purchases, fuel surcharge waiver, and reversal of payments made to name a few. Your final bill is calculated after adjusting all credit and debit transitions. The transactions made after the billing cycle appear in the next statement.
The credit card payment due date is the date by which you’re required to pay off your credit card outstanding amount every month. It is typically set by the card issuer 21 to 25 days after the date your last bill was issued. You can choose to pay the outstanding amount on or before the payment due date. However, if you don’t make the credit card bill payment by the due date, you incur late payment fees and interest charges. Additionally, if you use more than your credit limit, you may be charged an over-the-limit fee.
Minimum Payment or Minimum Amount Due (MAD) is the minimum amount of money that you are required to pay each month to maintain your credit card account. It is a small amount against your credit card’s outstanding balance and is set by the card issuer. By paying the minimum amount every month, you can avoid incurring any late fees.
MAD is generally close to 5% of the total outstanding amount on your card or a fixed amount of a few hundred rupees, depending on your credit card type. This amount also includes your ongoing EMIs and other charges such as applicable GST.
Although the late payment fee is not charged in case you make the minimum payment, finance charges will still be levied on the remaining outstanding balance. The interest on the remaining amount can be as much as 48% per annum, and it can potentially pile up to significant amounts, which means that it can take months to pay off a single credit card bill. Thus, late credit card payments should be avoided as much as possible.
Since the credit card issuer fixes your billing cycle's dates and length, you can’t change those parameters. However, you can alter your payment due date, which results in shifting your billing cycle dates. Some issuers provide the cardholder with the option to choose from a variety of dates. You can avail this option to choose the due date most suitable to your requirements. That said, you should remember that you can’t change the payment due date every month, and it could take more than one billing cycle to come into effect.