Written by: Erica Sandberg
Edited by: Austin Lang
Reviewed by: Jon McDonald
When you open a credit card or loan, the financial institution will send you a monthly statement showing a lot of information pertaining to your account. While that document is important, so is knowing the billing cycle — which is a fixed amount of time between two billing statement dates.
A billing cycle is the number of days between the starting date and the closing date of a billing statement, typically between 28 and 31 days.
And although the starting and stopping points can be confusing at first, when you understand the process, you can plan for upcoming transactions and keep your credit scores in good shape.
Ready to dive into billing cycles? Let’s go!
How Billing Cycles Work
Whatever the billing cycle is for your account, it is an interval of time in which the issuer summarizes all of your transactions, from charges to payments, and includes any finance charges and fees.
It’s the same basic concept for a loan. The billing cycle is the period between bills.
Loan bills may be less complicated than those of credit cards, though, since they essentially just show payments, fees, and your latest balance.
Typical Duration of a Billing Cycle
Most billing cycles last between 28 and 31 days. There are a few ways to know how long the cycle is for the account you have (and to know the dates for when the cycle begins and ends):
- Log into your account and check the terms online.
- Check your monthly account statement
- Contact the creditor and ask the representative.
Every credit card account has a billing cycle attached to it. It will begin on a specific date of the month, such as the first, and end on another specific date, such as the 29th.
How Transactions Are Recorded
A lot of important information can go onto your credit card account statement for any given billing cycle. Be sure to read them carefully. For example, you may see:
- Purchases and cash withdrawals. Any charges you made during the billing cycle will appear on your statement. If you took money out as a cash advance, that too will be noted
- Payments. If you paid your bill at any time during the billing cycle, evidence of that activity will be noted.
- Accrued interest. In the event you did revolve a balance and the issuer assessed interest, you will see how much was applied to the debt.
- Associated fees. Any fees that are associated with the account for that billing period will also show up. They may include annual fees, late fees, foreign transaction fees and more.
- Balance and payment expectations If there was a balance remaining from the previous billing cycle, it will show up on your new statement. Your new balance will be recorded, as well as the minimum payment due.
When the Billing Cycle Ends
Your billing cycle ends at the statement closing date. Therefore, if the billing cycle ends on the 15th, any purchases you make with the card on the 16th will show up on the next statement because that’s part of the next billing cycle.
There are a few good reasons to know the billing cycle end date. For example, it may not include all of your recent charges. Maybe your statement shows that you owe $1,000, so you pay exactly that amount.
However, if you made a purchase after the billing cycle, it will be carried over to the next billing period.
Additionally, the issuer will report the amount you owe to the three major credit bureaus when your billing cycle ends. Your debt-to-credit limit ratio (also called your credit utilization ratio) is an important credit-scoring factor.
Knowing how much you owe on that date can help you make a decision that improves your scores.
Credit Card Billing Cycles and Grace Periods
One of the most compelling features of most credit cards is that you can borrow money from the issuer with no interest added to your balance. All you have to do is pay the entire bill by the due date.
This interest-free grace period depends on the issuer, but it is typically 21 to 25 days. Federal law mandates that the grace period must be at least 21 days. If your credit card offers one, the grace period starts on the last day of your credit card’s billing cycle and ends on the due date.
To understand a credit card grace period, these two dates are important:
- Statement closing: This is when your billing cycle ends and a new statement period begins.
- Payment due: The payment due date will be a minimum of 21 days after the statement closing date. So if your account does have a grace period, as long as you satisfy the entire balance listed by that date, no interest will be added.
You will always get the grace period when you pay the debt shown on your bill — even if charges you made after the billing cycle haven’t shown up quite yet. They’ll just be added to the upcoming billing cycle. When you get your next statement and pay the bill in full, no interest will be added again.
Federal law also mandates that credit card due dates must fall on the same date every month. If it’s on the 15th, it will always be on the 15th. However, some credit card issuers will let you change the date to one that is more convenient for you.
The date that your credit card statement is generated can affect the length of your grace period. It may be a minimum of 21 days, but if your statement is issued on the 1st and your payment is due on the 25th, you will have 24 days of interest-free charges for that billing cycle. It can be more, but it can’t be less.
As for loans, interest is built into the payment, so you won’t get a break on those charges. Each month, a portion of your payment goes toward the accrued interest and the rest goes to the principal.
Loan billing cycles and due dates are consistent from month to month. When you pay on or before the due date, you are satisfying the terms of the agreement.
Grace periods do come into play when you pay late, though. Depending on the loan and lender, you have a certain number of days before a penalty fee is assessed and added to your bill.
Impact on Interest Charges
If you do not pay the balance listed on your statement in full during the grace period, interest will be calculated on the balance you shift to the next billing cycle.
For credit cards, interest is calculated daily and compounds, so it will be calculated on a balance that has already grown with those fees. Interest will be charged at the end of the billing cycle, and you see that amount clearly posted on your statement.
It’s easy to get into an expensive debt rut by only paying the minimum due. For example, if you owe $5,000 on a credit card with a 22% APR, it will take you 281 months of minimum payments to be in the clear. It’ll also cost you $8,526.51 in interest — and that’s if you didn’t make any new charges to the card during that time!
This doesn’t mean you must always pay your bill in full. If you prefer to pay for something expensive in a couple of increments, you certainly can. Just be aware that interest will be added to the balance you revolve after the due date because it signifies the end of the grace period.
There is no interest-free grace period for cash advances. As soon as you take the money out, interest will be assessed on that sum.
Grace Period Variability
Credit card issuers are not required by federal law to offer grace periods on the accounts. Most do offer them, though, and when they do, it must be a minimum of 21 days. If you want the most time to pay your bill without interest being added, look for a card that has the longest grace period.
Here are some grace period examples that different issuers offer on consumer credit cards:
- Chase: 21 days
- Citi: 23 days
- Capital One: 25 days
- Discover: 25 days
- American Express: 25 days
- HSBC (Mastercard Standard Credit Card): up to 45 days
Some credit cards offer 0% APR for purchases and balance transfers. No interest will be applied during the time frame, which is commonly at least 12 months.
For loans, many financial institutions will give borrowers a few days before assessing a late fee. For example, a bank may give a grace period of ten days for a car loan but 15 days for a mortgage.
It’s always best to pay by the due date. If you forgot to send the money or just need a couple of days to get it, contact the lender to find out how long you have before it adds the fee.
Billing Cycles for Loans
In addition to credit cards, billing cycles also apply to installment loans. They include loans for homes (mortgages), vehicles, education (student loans), debt consolidation and personal financing, and business.
The billing cycle can either begin on the date the lender disbursed the loan or on another specific date.
Typically Set Monthly Payments
Loan billing cycles are inherently less complicated than they are for credit cards.
With loans, you start off with a fixed balance that you repay over time in equal monthly installments. You won’t have to worry about charges that haven’t made it to your statement quite yet, or ensuring you have all the funds available to pay in full to get the interest-free grace period.
A loan billing cycle spans 30 days. After each cycle ends, the lender will:
- Assess the remaining balance
- Calculate accrued interest
- Apply payments from the previous billing cycle
Interest Calculation in Loan Billing Cycles
Unlike credit cards, interest on loans does not compound, so you will not pay interest on accumulated interest charges. Instead, most lenders use the simple interest method of calculation, so it is computed only on the principal.
Simple interest is calculated for each billing cycle. It involves taking the outstanding loan balance each day, and then multiplying that figure by the daily interest rate, which is the APR divided by 365.
That figure is the total interest for the billing cycle.
Payment Schedules and Due Dates
The good news about billing cycles and due dates for loans is that it’s simple compared to credit cards. Just make your payment on time.
For personal loans and auto loans, you will typically need to send in the same amount on the same date each month.
Prepare for your monthly loan payments so you don’t forget and incur a potential late fee.
For mortgage loans, the billing cycle is the same, but the payment amount could fluctuate based on other factors. That’s because mortgage payments include property taxes and homeowners insurance, among other considerations, that may increase or decrease over time.
How Billing Cycles Can Impact Your Credit Scores
Like most people, you probably want to achieve and maintain an excellent credit score. The most commonly used scoring model is produced by FICO, though VantageScore is also widely used.
FICO scores range from 300 to 850, with higher scores being preferable because they indicate less lending risk.
Understanding how billing cycles work is a smart step toward meeting that goal.
Payments Reported to Credit Bureaus
Credit card issuers and lenders furnish the credit bureaus with your account balance at the end of each billing cycle.
On a monthly basis, the credit-scoring companies will calculate your credit scores using the most recent data available from the credit bureaus — Equifax, Experian, and TransUnion.
However, there can be a lag between when the bureaus get it and when it’s posted to your report.
That means that even if you delete the debt, but it’s not reflected on your credit report, your credit score will be calculated on the balance.
Your Credit Utilization Ratio
Payment history is the most important factor in any credit-scoring model, but the amount of money you owe compared to how much you can charge on your credit cards is the second most important factor in a FICO Score.
This is your credit utilization ratio, which takes into consideration the amount you owe on each individual card and all of your cards in aggregate. Low or no balances on credit cards are best for your credit scores.
Here’s an example of how to calculate CUR for someone who has three credit cards and a $10,000 overall credit limit:
| Card A | Card B | Card C | Overall | |
|---|---|---|---|---|
| Balance | $500 | $0 | $2,150 | $2,650 |
| Credit Limit | $2,000 | $3,000 | $5,000 | $10,000 |
| Utilization Ratio | 25% | 0% | 43% | 26.50% |
Because the balance recorded at the end of your credit card’s billing cycle impacts your credit utilization ratio, it benefits you to keep that sum well below the amount you can charge (30% or less is the prevailing guideline).
How to Manage Payments for Credit Improvement
As I mentioned, the general rule for a good credit score is to have at least 70% of your credit line open. So if you have a card with a $1,000 limit, try not to owe more than $300. And if the total of your credit lines is $10,000, owing less than $3,000 is a good goal.
Because there can be a delay in your balance being updated on your credit reports, you may also consider paying your bill well before the due date, or a couple of times a month.
Another strategy is to satisfy your charges as you make them. For example, if you charge $100, immediately send that same amount from your checking account to your credit card account.
If you pay for purchases as you go, you will not only avoid interest charges, but you won’t have to make a payment at the end of the month. The balance will always be zero, helping both your payment history and your credit utilization ratio.
You’ll still earn rewards or cash back on the eligible purchases you made. Benefits and no interest charges can truly put your finances ahead of the game!
Billing Cycles are Important to Understand
As you can see, billing cycles are important, but they’re not as complicated as they may seem. The biggest differences between loans and credit card billing cycles are what’s included in each — and the predictability of the payment on the due date.
Knowing when billing cycles start and stop — especially for credit cards — can help you manage your finances, ensure that interest fees are kept to a minimum, and help you build excellent credit scores.
