A credit card billing process is a complicated one. However, this detailed guide attempts to make it easy to understand the concept.
Before we dig deep into the credit card billing cycle, we shall clear the concepts of credit limits and available limits.
Every credit card has a credit limit assigned to it by the credit card issuer. This limit depends on various factors such as your income, your overall debt position, your credit rating, the number of credit cards you have, and so on. You can use your credit card up to your specified limits.
As you keep using your credit card, the available credit limits keep on reducing. Similarly, if you receive a credit in your account or pay the credit card bill, your available limit increases.
Let us now understand the intricacies of the credit card billing cycles.
Credit card billing cycle
A credit card balance is a loan from the bank that you have to repay on a specified date. On a particular date, every month, the bank or the credit card issuer generates a statement of your credit card account. This statement is the credit card bill. The bank generates these statements on the same day every month. It includes all the transactions done by you between the two dates. This period between two successive statements generation dates is your billing cycle.
What does your credit card statement contain?
The credit card statement or bill contains various data regarding the usage of your credit cards.
- The outstanding amounts at the commencement of the billing cycle
- Details of all payments made using the credit card during the billing cycle
- Details of any credit received such as cashback, refunds, or bill payments, and so on
- Finance and other charges such as renewal fee, cash advance charges, late payment fees, and so on
- The closing balance/the amount you need to pay at the end of the billing cycle
- Date of the generation of the bill
- Due date of payment of the credit card bill
- Minimum payment due to prevent default in repayment
How does the billing cycle work?
Usually, the due date of payment of the credit card bill is about 20 days from the bill generation date. Therefore, if your bill date is May 5, the due date for payment is May 25. Similarly, the next statement generation date is June 5 with a corresponding due date as June 25.
Depending on the billing cycle and due date of payment of the credit card bill, you get a maximum of 50 to 52 days of interest-free credit. This interest-free credit period is the grace period. It is available only to cardholders having a perfect repayment record. In other words, the opening balance of such bills is always Zero.
When do you pay your credit card bill?
It is crucial to pay the entire credit card bill before/on the due date to avail the benefit of the grace period. However, if you are unable to pay the entire bill amount, there are facilities for making part-payments.
Minimum Payment Due
If you notice your credit card bill carefully, you find an amount listed as ‘Minimum Payment Due’. You can pay an amount equal to or more than this amount to avoid classification as a defaulter.
When you make a part payment of the bill, you carry forward the balance amount to the subsequent month. Under such circumstances, the unpaid amount attracts interest @ APR from the date of origin of the debt to the time of repayment. Besides, any subsequent purchases/usage before the clearance of the entire bill attracts interest from Day 1. You thus lose the interest-free concessional period.
Specific payments such as ‘cash advance’ attract interest from the time you use the facility to the day of repayment irrespective of the fact that you are regular in your repayments.
Your credit card statement contains details of such interest and other charges debited to your account.
Late fee concept
It is advisable to pay the credit card bill on/before the due date. If you miss the due date, you can make a late payment. However, the late payment fee will be debited from your account. Besides the late payment fee, the banks can charge interest @ APR from the date of originating the debt up to the time of payment. These amounts will reflect in your subsequent bill. You should clear this bill as well to continue availing the benefit of the grace period.
The concept of the credit card billing cycle should be clear by now. It is critical to pay the credit card bills on time every month and avoid defaults. These defaults can be expensive and affect your credit rating adversely.
Do you want to know more about Credit card bills and more. Read on here