How do credit card billing cycles work?

Billing cycles are essential to the functionality of credit cards. That’s why understanding billing cycles is important for financial planning. While the language surrounding credit card billing cycles can be confusing, it doesn’t have to be. 

What is a billing cycle?

While billing cycles seem specific to credit cards, they are likely something you encounter all the time, as they’re fairly common for utility services, subscription services and, of course, financial accounts like loans, mortgages and others. A billing cycle is a period during which the charges for a recurring service have taken place. The charges for an account are reflected on a billing statement that is sent to you after your billing cycle ends. 

When it comes to credit cards, a billing statement generally tells you:

• Your previous balance
• Any payments and purchases made during the billing cycle
• Any fees owed (late fees, balance transfer fees, etc.)
• The interest on your outstanding balance
• The new balance for the statement period — based on your purchases, payments, interest and fees
• The minimum required payment and its due date

Keep in mind that even if you close your account, you’ll continue to receive a monthly statement for any remaining balance until the account is completely paid off.

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Another thing to keep in mind is that billing cycles can vary in how long they are. Some billing cycles might begin and end on a date of the creditor’s choosing or on the day the account was opened. Others, however, very well may be monthly — starting on the first of the month and ending on the last day. Many times, though, a credit card’s billing cycle might be shorter or longer than a typical month. There’s actually no limit on a credit card billing cycle’s length, though they tend to be around 27 to 30 days long. In some cases, your billing cycle might have more days than a regular month, especially if the cycle technically ends on the weekend and your issuer pushes the cycle’s ending date as a result.

Confusing aspects of billing cycles

In order to truly grasp the concept of a billing cycle, you’ll need a thorough understanding of the difference between statement dates (also known as closing dates) and payment dates. Confusion between these two facets of billing cycles can result in misunderstanding how much time you have to pay your balance without interest.

A statement date is the day your billing statement is sent to you. Your statement date is typically at least 21 days before your payment date or the date by which you must pay your bill. After your statement date, any new charges will be reflected on your next statement unless paid off before the payment date. You’re not obligated to pay off your entire balance, but you must at least pay your credit card’s required minimum if you want to maintain your account’s standing. It’s worth noting that, in some cases, you can negotiate your payment date to better accommodate your financial situation. 

Grace periods and intro APRs

Now that you know how billing cycles work, you can understand how billing cycles relate to grace periods and intro APRs.

Grace periods, if they’re offered, occur between your statement date and your payment date, as we’ve noted before. Any balances paid off before the grace period ends are effectively interest-free, as interest isn’t applied until your payment date. If a balance is carried over into the next pay period, in most cases, interest will be applied immediately to new balances, and you’ll have to forgo a grace period until your card is completely balance free. Not all transactions may qualify for your credit card’s grace period — for example, cash advances are almost always charged interest. The specifics of your card’s grace period should be in your credit card agreement.

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Intro APRs generally allow you to enjoy a lower (or even no) interest rate on purchases for a set number of billing cycles. In order to maintain this low rate during the introductory period, you must pay your card’s minimum monthly payment or risk hurting your credit and losing your rate.

Other things you should know about credit card billing cycles

Everything we’ve mentioned above should help you understand credit card billing cycles and how they’ll affect your finances, but there are a few other things to be mindful of.

Because of identity theft, as well as simple accounting mistakes, there’s a genuine possibility that your billing statement could have errors. As such, you’ll want to always review your statement in a timely manner and make sure you understand the breakdown of what you owe. If you find errors, you can dispute them by mailing a written letter within 60 days of learning about any erroneous charges, or by calling customer support. If your card was stolen or used fraudulently, you can also call and notify your credit card issuer.

Creditors report to credit bureaus at different times. Some creditors report to the credit bureaus on or around your statement closing date. Knowing this can be useful when applying for a loan or when simply trying to improve your credit. Payments made around this time will result in a lower reported credit utilization ratio. Of course, all payment decisions should be made first and foremost with consideration for your finances, but if your financial situation allows, this can be a good opportunity to plan strategically.

[This article was first published on The Simple Dollar website in 2020. It was updated in March 2022.]