You must be confused about what a credit card billing cycle is and how it works, if you’re a new user. It is essential to be aware of what this term means and how an issuer calculates it. Once you understand all about it, you can make the most out of your credit card.
What’s more, it can assist you to plan the repayment better and avoid any late payment fee and interest charges. Know what this term means and how it is calculated in detail.
Understanding the Credit Card Billing Cycle
Credit card issuers collect the dues on a monthly basis. The billing cycle refers to the monthly period in which the issuer generates the bill. It can differ from one issuer to another and can be different for each user. Generally, it ranges between 28 and 31 days.
The issuer sends the bill to the user after every billing cycle online as well as offline. You can also check your dues on the portal of your credit card provider. In case you fail to repay the minimum amount, the issuer applies late payment charges on the bill amount.
When you receive your bill at the end of the billing cycle, it will include:
- Payments and purchases made via your card during the current billing cycle
- Outstanding dues from the last credit card statement
- Interest charges incurred on your outstanding balances
- Associated fees and charges applicable to your credit card
- Cash withdrawn using your credit card during the current billing cycle
- Credit card balance transfers carried out within the current billing cycle
Calculation of the Credit Card Billing Cycle
Now, let’s understand how an issuer calculates the billing cycle.
- Once the issuer activates your card and it’s ready to use, the billing cycle also starts.
- At the start of the cycle of a new card, the balance will be zero since you’ve not made any payments or purchases yet.
- It may include some fees and charges that will be reflected in your credit card statement, such as an upfront fee.
- In case you are transferring the balance from your existing credit card to a new card, it will include this balance as well as the balance transfer charges.
- From that day onwards, the credit card statement will consist of all the transactions that you make during the current billing cycle.
This includes:
- Any existing EMIs of the purchases made through the card
- Cash withdrawals from an ATM using your credit card
- Payment of your electricity or gas bill
- Online and offline purchases, etc.
Any cashback that you may get is deducted from the final bill. In case any transactions are made after the current billing cycle ends, they get added to the next billing cycle.
Example of a Credit Card Billing Cycle
To help understand the concept better, let’s consider an example.
- Suppose your credit card company generates the bill on the 2nd of each month.
- So, for this month, the billing cycle will start from the 3rd of this month.
- Every transaction you make will be included in the bill when the billing cycle for this month ends.
Benefits of Paying Your Credit Card Dues on Time
Now that you know how credit card companies generate the bill, here are some benefits of paying it on time:
- Paying the bill on time and in full helps you save money on interest and late payment charges
- Timely payments of your credit card dues help increase your credit score as it reflects a solid financial standing and positive credit repayment behaviour.
- It helps you maintain a high credit limit or request an increase in the current credit limit on the basis of your current repayment pattern.
- It avoids the stress of dealing with debt collectors of debt collection agencies appointed by the credit card company.
- Paying the bill on time helps keep the minimum monthly payment amount low, which you can benefit from in times of a financial crunch.
- Clearing your dues on time and in full makes your repayment easier and helps you get debt-free much earlier than you had expected.
- Paying off your bills as they come helps you track your spending patterns and manage your finances in a better way.
This information could help you frame the strategy for your credit card application and repayment. If you’re still looking for a credit card option to apply for, consider the One Credit Card. With this card, you can spend confidently with full control of your finances. Also, the powerful mobile app lets you manage your application and finances hassle-free.
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