If you are planning to get a new credit card or are a new cardholder, you must be hearing various terms over and again. One of these is sure to be the credit card billing cycle. The billing cycle is also known as the credit card statement cycle.
Understanding how the billing cycle of your card works is critical since it deals with the repayment of your credit card dues. Here’s an informative guide on what it is, how it works and much more.
What Exactly a Billing Cycle is and How Does it Work?
The credit card billing cycle refers to the period between the end of one statement and the start of the next. Typically, this cycle lasts between 28 and 31 days. All transactions carried out within this cycle are mentioned in the monthly credit card statement.
Here are some transactions that may be mentioned in the bill:
- Payments for goods or services using the card, both online and offline
- Cash withdrawals from ATMs or financial institutions
- Interest charges for carrying a previous balance beyond the due date
- Late payment penalties for failing to make the minimum payment on time in the last cycle
- Fees for purchases made in foreign currencies
Let’s understand how credit card billing works with an example. Assume that your card was activated on 2nd September. All the transactions from this date will be included in the September billing cycle and you will get the bill on 2nd October.
Types of Billing Cycles
There are different types of billing cycles as per the banks and financial institutions. All credit card companies allow customers to choose their preferred billing cycles at least once after getting the card. Read below to learn about them.
- Monthly Billing: This is the basic type of billing cycle offered by banks and financial institutions. In this cycle, customers receive a bill every month, depending upon the billing cycle date. These types of cycles are usually offered by internet service providers, issuers, insurance providers, utility providers, etc.
- Quarterly Billing: Quarterly billing would mean that the bank will provide a bill every three months. This cycle will be accounted for 3 months of transactions and is often used by insurance and subscription-based companies.
- Annual Billing: As the name suggests, annual billing services provide a final yearly bill after the customer uses the services for a year. This billing system is very common for property taxation, vehicle insurance, and yearly subscriptions.
Where to Find Your Billing Cycle?
You can find out details about your billing cycle via these ways:
- Credit Card Statement: It will list the start and end dates of your billing cycle.
- Online Account: Log in to your card issuer’s website or mobile app to view your billing cycle details.
- Customer Service: Contact the customer service department of your card issuer to inquire about your billing cycle.
- Email Notifications: Issuers include the billing date and billing details in their email alerts.
What is the Minimum Payment Due on a Credit Card?
In order to maintain your credit card account, you can pay the minimum amount before the credit card payment due date ends. This helps you avoid a late payment penalty fee and it is a small deposit towards your outstanding amount.
Even once you have paid the minimum payment, the bank or credit card company will keep applying interest rates on the remaining due amount. The interest rates can be as high as 48% and will only increase your final dues. Instead, you can avoid paying this by paying your total due amount.
Impact of Billing Cycle on Credit Score
Your credit score directly depends upon the timely bill payments for credit cards and other types of credit. A credit score is negatively influenced when you do not pay the due amount by the due date. So, knowing the due date and paying the bill on time is crucial and signals responsibility when it comes to handling credit.
The credit score also goes lower if multiple bill payments are late. This score is an important factor considered by banks and financial institutions before providing a loan or a new card and so, it is necessary to maintain this score.
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