5 Easy Ways to Know How the Credit Card Billing Cycle Works

In 2020, facing a huge rise in defaulting credit card users, with the lockdown due to the pandemic yielding layoffs, salary cuts and joblessness, banks began to request credit cardholders to settle dues. They introduced several “terms beneficial to users”. A leader in the credit card issuer category, SBI cards witnessed its gross non-performing assets surge. 

 It is important to know certain aspects of your credit card billing cycle in order for you to make timely payments, and not run the risk of being termed a defaulter. Defaulting on payments only harm your credit profile and score for future requirements, say, if you want a home loan. The billing cycle of a credit card is the period between billing statements. The period varies from card issuer to card issuer, but it is typically around 28-31 days.

These went up to a whopping 4.29% of gross advances as recorded in September 2020, compared to 2.33% in September 2019. Losses jumped to INR 485 crore in June 2020, from INR 329 crore in September 2019. In the last quarter, the losses rose to INR 862 crore. Settlement of dues frees up the capital of banks. Banks have to offer solutions in dire times and these are in the form of discounted repayment options, giving defaulters a chance to pay what they owe.

What it is and How it Works

The time period between billings is called the billing cycle. At the conclusion of your credit card billing cycle, your statement is compiled by your credit card company (bank or finance company), mentioning a due date by which you must pay the amount on your bill. 

This is the payment you have to make against expenses you incurred using the credit card. Ranging from 28 to 31 days, billing cycles vary according to the issuer and the credit card opted for. Within the billing cycle, credits, fees, purchases and finance charges are included in your account and added (or subtracted) from your balance.

You can manage your credit card payment cycle efficiently. If you opt for credit cards like the Bajaj Finserv RBL Bank SuperCard, you can convert your credit card purchases into easy EMIs and this gives you more time to pay your bills. The card has a low interest rate of 1.16% per month, and you can opt for loans for up to 90 days. Here are 5 ways to know how billing cycles work and how to manage them.

1. Plan – The billing cycle refers to the period for which a credit card bill is issued. A credit card statement may be issued on the 15th of the month. Then, the billing cycle will begin from the 16th of the month prior to that, continuing till the 15th of the present month. Knowing the exact duration of your billing cycle can help you to plan when to spend and how. You may not want to purchase expensive goods right before your bill is going to be generated, as you will have to pay hefty bills faster. Putting off costlier spends will give you a longer line of credit. 

1. Understand minimum payment – The minimum payment on a credit card is the minimum amount you must pay by the due date. This doesn’t include all your spends, fees, charges etc. in your credit card payment cycle, but is a fraction of the total bill amount, and is typically 5% of that. This payment is requisite for you to maintain your credit card account. Nonetheless, making only this payment will incur interest on the balance to be paid. This varies from card issuer to card issuer, and also depends on the type of card used. Interest may be charged daily up to the date you settle your bill. 

1. Interest on new purchases – You might have an outstanding amount to be paid. Then you will be charged interest per day plus 18% GST on that amount. Additionally, you will be charged interest for all fresh spends in the new billing cycle till you settle your previous outstanding balance. 

1. Billing cycle grace period – At the end of the billing cycle, a statement is generated and the date on that is the “statement date”. The due date mentioned on the statement will be a later date. The Reserve Bank of India gives the credit card user 3 days after the due date, as a grace period, to settle a credit card bill. Taking this into consideration, some credit card issuers include the “grace period” within the due date period, so you need to be sure and check for the specific card you use.

1. Late fees – In the event you fail to settle the bill amount, or the amount in your billing cycle, credit card companies charge a “late fee” along with interest. 

Knowing the dates related to your billing cycle can help you to plan your spending efficiently, and consequently manage finances to pay bills in a timely manner. You may want to postpone large spending amounts to the next billing cycle, as this gives you some breathing space, during which you can settle your bill amount.