How Credit Card Billing Cycle Works - It is possible that you’ve been using a credit card for years now, but still, don’t really understand everything there is to know about them. Consequently, don’t be too surprised when you find out that efficient and profitable credit card use, entails much more than you think you already know. Using a credit card is ideally not just about knowing the basic card features alone, but also understanding how each of those attached features affects you- the user.
The credit card billing cycle covers everything that pertains to credit card use, and how consumers are affected by the use of the service. It is expected that you’ll also be able to gain the required optimum use of your credit card, by understanding most of the general terms and conditions of their use. Hence, this article is intended to explain all that you need to know about the credit billing cycle, and how to leverage each of its component features.
The credit limits on any credit card are the spendable amounts that are available on that specific card. Every issued credit card essentially comes with a stipulated credit limit- which is what determines how much you can use the card. This means that you can make payments on your credit card, only to the tune of the attached credit limit. Firstly, your credit card limit has been determined from an input of your credit history. Hence, the card issuing company had considered your debt repayment records as well as your overall credit score, before fixing a credit limit on your card. Usually, you’re awarded a higher credit limit if your records are in good standing, while a lower credit limit is issued on a card whose owner does not have a very impressive record.
Now, credit card billing cycles are the period between which you can use your card for every of your payment activities- to the tune of the credit limit on the card, without incurring a penalty. It is thus, the periods between separate billing statements on your credit card. During a billing cycle, all your payment transactions are deducted from your credit limit. Because of this, your available credit would be the credit limit on the card, minus every expense made on it. Thus, if you have a credit limit of $600 and you made a total expense of $250 on it, your available credit on the card would then be $600 minus $250.
Your balance, however, is regarded as the amount that you’ve already used on the credit card. Hence, your total expense of $250, is actually your balance on the credit card. Now, when payments are made into your account, your balance (which is your used credit) decreases, while your available credit increases- depending on how much was paid into the account.
Furthermore, depending on your card issuer, you may be allowed to use credit over your stipulated limits. Once you’re opting for this, however, you’ll need to process an over-credit-limit charge, which is not a penalty on its own, but a form of service fee that officially allows you to use more than your original credit limit. Note that your application to exceed your credit limit must be approved first, otherwise attempts to make the overspend would definitely be declined.
After the end of every billing cycle, your card issuer would send you the details of the transactions made via your credit card. These details are known as the billing statements, and they try to be as detailed as possible. The features are added, to enable the card user to see the true and clear outline of how their spending was made in the course of the just ended billing cycle. Note that billing cycles are not generally defined, as the card issuer defines the number of days per billing cycle. Usually, credit card billing cycles have a duration of between 25 to 31 days. Your card issuer would fix the definite number of days for your own credit card, and it is important that you’re aware of the days.
Things to find on your billing statement includes your balance that was carried over from the last billing cycle, hence it shows your expenses for the past month. It would also show the credit payments and other deposits that were made into the operating account during the billing cycle. If there are any fees that you’ve incurred in the ended billing cycle, these details are also stated, and then added to the balance that you’ve to pay. Using all this information; your outstanding balances can then be deduced, by deducting the credit payments that were made into the account, from the initial grand balance that should be paid.
Billing statements are significant for your credit card use because they help you have more accurate information on your spending tendencies and your credit standings. Although you may also be able to see your credit card transactions before the next billing statement hits your mail, the statement, however, makes it easier for you to know where you stand in terms of your balance payment. This provision for your credit card use also saves you from blindly paying fees and hidden charges that may occur, if you didn’t have a detailed breakdown.
Other information that your billing statement would contain are the minimum payments that you must make for the ended billing cycle, as well as the grace periods and possible penalties.
The credit card issuer also wants back their money when it’s due, so they charge you interest on the sums- if you’re not able to meet up. Finance charges apply on your credit card if you’ve carried an unpaid balance from a previous credit card billing cycle, into the current one. Now, when thinking about sending your balances to the coming month, remember that your payable charges would be freshly calculated- since it’s not in any way going to be a flat rate fee.
Finance charges are computed and derived using the annual percentage rate, together with either of five other calculating methods. The five methods that would be used along with the annual percentage rate may be either of average daily balances, an adjusted daily balance, the previous month’s balance on the card, the daily balance, as well as the ending balance. The credit card company reserves the right to choose which of these five methods it would be adopting, so you may have little or no inputs in determining what charges you’ll have to pay. Although this is true, most companies are likely to follow a pattern of calculating these charges, so you may find out what method your card issuing company uses. Finance charges are even worse for persons with huge balance debts since it is observed that the higher the balance debts, the higher the accruing finance charges on them.
On another hand, credit card users with no outstanding balance from a previous month, are allowed to pay their current full balance- without an added finance charge penalty. However, there is also a time frame within which the payment must be paid, before a finance charge is subsequently included. The time-frame period within which the payment can be made with no attached penalty is what is referred to as the grace period. For the bulk of card issuing companies out there, grace periods in credit card payments start from every first day of a new billing cycle, up until a certain number of days after- as individually determined credit card issuers.
Summarily, note that every balance rollover- no matter how little, attracts a finance charge. There are also some specific services that do not even allow a grace period for users of same. For instance, cash advance transactions, do not come with grace periods. Hence, if you’re taking a cash advance, then be prepared to make the repayments to time, or expect to see a finance charge on your next billing statement.
After every billing cycle, credit card users are usually required to make a minimum payment; the card issuing company stipulates that. Mandating them to pay fractions or percentages of their monthly balances- as the minimum payments, is a way by which the issuing companies help their customers. Hence, on your billing statement for every month, your credit card company states a calculated percentage of your balance that you must pay, if you’ll continue using the service. The aim is to make credit card payments a bit easier and convenient for users. Consequently, every required minimum payments, are expected to be deposited on or before the due dates.
Failure to make the payments before the due dates, attract the late fee payments. The late fees that must be paid depending on the credit card company. While some service providers calculate the late fee as a percentage of the total unpaid balances, others may calculate it as a percentage of the minimum payments. In yet some other cases, companies tie different fees for different balance categories. For instance, balances between $1 to $500 may attract a late fee of $20, while balances of $501 to $1000 may attract a late fee of $50, and so on. Before applying for a credit card, it is important to find out what the issuing company’s late fee format looks like.
Additionally, every credit user should always know that late minimum payments attract more consequences than just the late fees. For instance, if you’ve failed to make the minimum payments within 30 days from the deadline, the credit card company could send a report to any or all of the credit reporting agencies, stating your delinquencies.
Note that your spending tendencies directly affect what balances you have to pay every month. If you’re able to keep charge and payments way below your credit limits, you’ll discover that you’re conveniently using your credit card facility. You can significantly reduce your minimum payments by making credit payments to the accounts operating the credit card- even before the end of the billing cycle.
Note that what we’ve discussed are majorly centered on credit cards, other than charge cards. There are significant differences between the two, and you must be sure of what you’re applying for- when you pick the form. Credit cards allow monthly minimum payments- hence, permitting you to push payments from one month to the next. This is however not so with the charge cards since the issuing companies expect that users pay the balances in one payment- at the close of every billing cycle.
The best way to not run into huge debts on your credit card is to try as much as you can, to keep a good credit sheet. To achieve this, credit card users must pay attention to the issuing company policies, and make sure they are convenient with the terms and conditions of service. Always put some extra priority on your monthly billing statements, and be sure to take note of each minimum payments and their due dates.
Another advice for credit card users is to always stay below their monthly credit limits. If you’re able to stay below your credit limits, there are increased chances that your monthly balances would not become unbearable. Some people think that it is, in fact, better, to go for a credit card whose issuing company, does not allow over-credit-limit payments. The opinion is that once you know you’re not able to spend beyond your stated credit limit, you’ll most likely find a way of coping within the limit.
Lastly, make sure you’re always aware of your credit card limits, as this helps a lot. If you’re not sure of what the limits are, it is proper to confirm same from your issuing company.