What Is a Credit Card Billing Cycle & Its Impact on Credit Scores?
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10 APRIL, 2023

With credit cards, individuals can secure a way to get urgent funds. You can shop, pay bills, buy assets, and do more with credit cards. There are several terms associated with credit cards for users. Among all the terms, the billing cycle is an important term for credit card users. Many users often confuse themselves with the billing cycle of the credit card.

A credit card billing cycle is the time between monthly statements of your card. This is the time you can use your credit card. How to know billing cycle of credit card is over? Well, it ends on a specific date, known as the statement closing date. Following the closing date the card issuer prepares your credit card statement. So know what is a billing cycle to use your credit card smartly.

Even if you are applying for the best credit card in India, it is essential to know the credit card terms, including the billing cycle. Read on to learn more about the billing cycle and how it affects the credit score.

What is Credit Card Billing Cycle

Every credit card user has to pay the used credit balance to the credit card issuer. Usually, credit card issuers collect monthly payments from users. The card billing cycle is a monthly period within which the credit card bill is generated. There is no compulsion that the billing cycle will last from the first day of the month to the last. The billing cycle can start from any day in the month and lasts for 30/31 days. The credit card bill statement is mailed to the user for every billing cycle. If the credit card bill for any billing cycle is not paid, penalties/late charges might follow. In addition, all the payments, cash withdrawals, and purchases done with the credit card in the previous billing cycle are forwarded to the user. Billing cycles enable credit card issuers to collect credit card payments easily. Card billing cycles can differ from one issuer to another. The billing cycle can also be different for each credit card user.

Let us understand the concept of the card billing cycle with an example. Consider the billing cycle of a credit card user ends on the 5th of every month. This means the billing cycle will start the next day (the 6th of every month). All transactions between the 6th of the previous month and the 5th of the current month will be shown in the credit card bill statement. Likewise, the credit card statement will mention all transactions and purchases made within this period. Any transaction occurring on/after the 5th of the current month will be counted in the next/upcoming billing cycle. Credit card issuers take the billing cycle seriously and do not change it automatically. However, the credit card user can request the issuer to change the billing cycle.

How does a Credit Card Billing Cycle Work?

The following is the start to end process of a credit card billing cycle:

  1. Start Date: A billing cycle begins when you activate your credit card and start using it.
  2. Bill Accrual: As the billing cycle begins following your credit card activity, each purchase you make during this time will be added to your credit bill.
  3. Statement closing date: When the next month credit card bill generation date is near, the card issuer generates your statement based on your spending behaviour.

Where to Find Your Billing Cycle?

As you know what is billing cycle in credit card, you should also know where to find it. You can find your credit card bill generation date on your monthly statement. You’ll receive the same on your registered email or can collect the same from the nearest branch office.

Credit Card billing Cycle with Minimum Due Amount

The last date of the billing cycle is referred to as the statement date. Any credit card transaction after the statement date will be counted in the next cycle. Why should credit card users keep the statement date in mind? The statement date invites the credit card bill for the previous billing cycle. After the statement date, credit card users have two choices, that are:

  • Pay the minimum due amount to the credit card issuer.
  • Pay the entire outstanding credit card balance to the credit card issuer.

The time to pay the outstanding balance is usually 20-25 days after the credit card billing cycle. One can push the outstanding balance to the next billing cycle by paying the minimum due amount. Also, penalty charges and late fees can be avoided by paying the minimum due amount. However, the credit limit will only increase slightly by paying the minimum due amount. Users who pay the entire credit card bill unlock their credit limit. Therefore, paying as much as possible after a billing cycle is better than the minimum due amount.

The minimum due amount can be 5% of the total credit card outstanding amount. For some issuers, the minimum due amount is a pre-fixed amount, irrespective of the total outstanding balance. Unpaid minimum due amounts are carried over the next billing cycle.

How Your Billing Cycle Affects Your Credit Score

As discussed above, the end of the billing cycle is the start of the time for paying the credit card bill. Credit scores directly depend on timely bill/EMI payments. Based on the bill payment record, an individual’s credit score can range between 300 and 900, check your score via a credit score checker. In the worst-case scenario, an individual should at least pay the minimum due amount to preserve their credit score. Credit card credit scores will hit if multiple bill payments are missed. Therefore, consider the end of the billing cycle as a reminder to pay the monthly credit card bill.

A credit report is formed based on a credit card user's past payments. Credit card issuers and lenders utilise the credit report before extending any service. A missed credit card bill date can be reflected for up to three years in the credit history. It might have an impact on future credit card services and loan applications. A missed credit card bill will harm the credit score, whether intentional or by mistake. Credit card issuers frequently report customer data to credit rating agencies. A single missed payment will soon be reflected in the individual’s credit report.

What is Credit Card Billing Date?

The billing date is when your card statement is generated by the issuer. Typically it is the last day of your billing cycle. Suppose your card statement is generated on the 7th of each month, the billing cycle will start from the 8th of each month. And the cycle continues till the 7th of each month. So your credit card due date (billing date) is the 7th of every month.

Important Points to Note for Credit Card Users

One must understand the relationship between the billing cycle and the credit score and maintain a good credit report. To boost and keep a good credit score, users should be mindful of the following:

  • The duration between the statement date and the due date of the credit card is the interest-free period.
  • Interest charges aren’t added to the outstanding bill amount during the grace period or interest-free period.
  • Not all credit card issuers allow changes in the billing cycle. Individuals should choose credit cards with billing cycles that suit them.
  • After paying only the minimum due amount, the credit score might not fall. However, the credit score might not increase by paying only the minimum due amount.

The billing cycle and interest rates are communicated with the credit card users beforehand. Paying credit card bills timely at the end of the billing cycle will boost the credit score. If you are looking for one of the best credit cards in India, you can apply for a Kotak credit card and enjoy benefits in 2023!

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.