What does billing cycle mean and how does it affect your credit card?

2023-05-20 18:17:47

The billing cycle, which means billing cycle, is the period of time between the start date and the closing date of the account statements. It is a common term in credit cards, although it is not exclusive to them.

The truth is that the billing cycle can apply to any product or service offered on a recurring basisas is the case with electricity, mortgage loans and streaming services.

If you want to know how the billing cycle works, how it affects your billing and how long it lasts, approximately, stay until the end of the article. We explain all this and more.

How the credit card billing cycle works

The billing cycle of a credit card allows you to establish which transactions, expenses or purchases will enter your monthly bill. It also helps banks to calculate the start date, the closing date and the payment or expiration date of the card.

The best way to understand the credit card cycle is by looking at the timeline, that is, what happens from when the billing cycle starts and ends:

• From the start date, the credit card issuer will start recording all transactions you make. It will stop doing so on the closing date.
• After the cut-off date, the card issuer will generate the card statement. To do this, it will add up all the purchases you’ve made during the billing cycle.

The generated account statement will show you the credit card balance, which is calculated by adding all the expenses you have made during the billing cycle with the previous debt (if any). It will also detail other things, such as:

If you pay off the card during the grace period (which is the time that elapses between the issuance of the account statement and the expiration date of the card) you will get rid of interest. If not, you will have to pay the total.

Example of the credit card cycle

Suppose that the start date of your card is April 1, that the cut-off date is April 30, and that your bank or credit union gives you a grace period of 20 days. This would be a good example to understand the billing cycle:

• you do your shopping. Which, in total, was $1,000 for the month of April.
• You wait for the cut and the invoice. That includes that $1,000 and the $500 you owe in March, for a total of $1,500.
• You decide when to pay the debt. Since you have 20 days of grace, if you pay before April 30, you will avoid interest on the card. If not, the bank will charge the APR to the outstanding balance.
• Start your new billing cycle. Specifically on May 1, this entire process will be repeated again.

How long are credit card billing cycles?

US credit card billing cycles typically last 28-30 days, but can vary by issuer or month of the year. However, banks must comply with federal consumer protection law.

Under United States law, the court date can change every month in a maximum of four days. This time frame exists to accommodate the longest or shortest months of the year.

What is the best billing cycle for a credit card

There is no billing cycle that is better than another. This depends a lot on individual preferences.. In general, holders tend to prefer a shorter billing cycle, such as 28 days, because it allows them to better manage your budget.

However, there are other people who prefer their billing cycle to be longer, since it offers them more time to pay off the bill (and avoid interest if they pay the balance in full).

What happens if you pay your card before the cut-off date?

By paying your credit card before the cut-off date, you may be able to reduce the outstanding balance and therefore decrease the amount of interest that could accrue. This can also help you maintain or improve your credit score.

How do you know what your billing cycle is?

You can see your billing cycle on your monthly statement. There you will find the closing date and the start date of your card. The difference in days between one date and another will indicate your billing cycle.

How long is “1-2 billing cycles”?

As, on average, a billing cycle lasts 28-30 days, “1 to 2 billing cycles” means one to two months, approximately. Banks often use phrases like these to announce the terms of a card’s rewards.

How does the card’s billing cycle affect my credit score?

Since issuers usually report credit cards to the bureaus on the cut-off date, knowing when your billing cycle ends can help you control the information that appears on your credit report.

For example, if you have a card with a credit limit of $3,000 and before the cut-off date you manage to reduce your balance to $700, the issuer will report that you have a credit utilization of 23.33%, something very positive for the calculation of your FICO Score.

What is the billing cycle for a Bank of America credit card?

Bank of America (BofA) credit card billing cycle is typically 25 dayssuch as the grace period. However, this may vary depending on the type of BofA credit card you have and the opening date.

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