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You know that you get a credit card statement each month (delivered electronically or to your mailbox — and sometimes both!) You probably understand that your credit card statement includes any purchases and charges made during that billing cycle, as well as any payments made in that billing cycle. You’ll also see the finance charges (interest) you accrued during that billing cycle.
But what exactly is a billing cycle?
Simply stated, the billing cycle is the time between when you receive one credit card statement to when you receive the next credit card statement.
All finance charges are calculated based on the number of days in that billing cycle. If your finance charges are calculated based on your average daily balance, the average daily balance will be calculated based on the daily balance for each day in the billing cycle, divided by the number of days in that billing cycle. (You can read the terms and restrictions fine print in your credit card statement to find out how your credit card company calculates finance charges.) This is one reason it’s in your best interests to pay your credit card bill as soon as you receive the statement, as it lowers your average daily balance.
Also, if you pay your credit card bill in full before the end of the grace period (the time in a billing cycle when your purchases do not accrue interest), you won’t pay any finance charges at all. You can learn more about the credit card grace period in this article.
Remember, the billing cycle does not start or end on your due date, but from the date you receive your credit card statement.
According to the Credit CARD Act of 2009, your statement must be delivered at least 21 days before your next payment is due. The Credit CARD Act also introduced a few more regulations for paying your credit card bills that are designed to protect credit card customers.
- Your due date must be the same date each month.
- The cut-off time for payments cannot be earlier than 5 PM on the due date.
- If your normal due date falls on a weekend or bank holiday, payments are accepted until 5 PM on the next business day. This does not change your billing cycle, however, just the due date.
- No double billing cycles
Double cycle billing, explained
Does that last bullet point sound a little confusing? We already know that a billing cycle is the time between statements. A billing cycle is usually somewhere between 29 and 31 days, depending on how many days are in each month.
Double cycle billing means you would pay interest on purchases you made during the previous billing cycle, not the current billing cycle. The Credit CARD Act of 2009 prohibits this practice. You will not receive finance charges for purchases made during previous billing cycles unless there was an adjustment (a charge) that showed up as valid after you disputed the charge, or a new charge because the payment was previously returned due to insufficient funds.
Understanding credit card billing cycles makes it easier for you to manage your credit, avoid finance charges and save money.