Understanding the Credit Card Billing Cycle

What Happens during the Billing Month of a Credit Card?

Many of us use a credit card for years and yet you do not pay attention to how exactly the billing cycle of credit card works. For people who pay down the balance at the end of every month it is not very important, but in order to understand how to rotate and revolver balance from one month to another it may be important to understand how the billing cycle of credit card works. Let us try and understand the basics of a how the billing process of a credit card takes place in basic terms.

· Credit Limit — this is the first aspect of a credit card that one needs to understand. It is fairly simple. The credit limit on a credit card is simply the maximum amount that you are allowed to charge on your card. As you go on charging your credit card in a particular month your credit limit decreases by that much to the time that you exhausted completely. Reaching the end of the credit limit will not stop the credit card from working but will result in a poor limit charge being levied on you if you make expenses beyond the credit limit.

· Billing cycle and Statement — every credit card company has a billing cycle. The billing cycle is a particular date in a month in which the credit card provider calculates the total charge that has been made to the credit card as well as any previous balance that has been carried forward. The billing cycle of a credit card is typically 30 days but can be different depending upon the credit card company. If it is a monthly billing cycle than your bill will be calculated on the same day every month. But if it is a three weekly cycle it will be completed at the end of every three weeks. The billing statement generated on the state will include the charges made during the current billing cycle, any balance due from the previous billing cycle, interest and finance charges in due on the previous balance and any other fee such as late fee. Any payments that you have made towards your credit card for the previous or current balance will be deducted along with other transactions such as cash back, discounts etc.

· Finance Charges and Grace Periods — if you have been carrying a balance on your credit card from the previous billing cycle then you will be levied a certain amount of interest and finance charges. These finance charges may be levied against the previous balance or on the total sum of previous and current balance depending upon the credit card provider. As per the laws enacted after the date of June 2010. The credit card providers will no longer be able to use the double billing cycle method to calculate finance charges. The grace period is the time between the date of billing and the due date which is typically 10 to 15 days. If you make the full payment on the total amount due on your credit card you can save on the finance charges and interest.

· Minimum payment And Late Fees — every credit card allows you to make a minimum payment on the total balance that is due in any particular billing cycle. The minimum amount due is nothing but the sum total of the interest and financial charges. You should at least make the minimum payment due on the credit card in order to avoid being levied the late fee. It is advisable to always make more than the minimum payment in order to pay off the amount due on the credit card. If you only make the minimum payment he will not decrease the original principle of balance at all. A late fee is levied on a consumer if he pays after the due date or pays less than the minimum due.

The few important things is to keep in mind using a credit card is to pay attention to your credit limit by staying well under it and paying off as much of the balance as possible at the end of the month (preferably paying the full balance).

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