Credit cards, also known as plastic money cards, have become the most popular and preferred payment method. According to recent data, the number of credit card users has increased from 52 million in 2019 to more than 64 million in 2021. The key features of a credit card, such as hassle-free payments, security of transactions, and the plethora of exciting offers and deals that come with it, have made these plastic money cards much sought-after. But before you use your credit card for shopping, making payments, and more, you must know its crucial aspects. These include the often-used terminologies, like billing cycle, due date, and minimum payment. Did you know what these terms refer to, and how are they computed? Well, here’s a detailed guide to help you understand the key terminologies and the processes involved in their calculation:
Credit Card Billing Cycle
Foremost, you need to know about the billing cycle. Understanding the billing cycle is a must for better financial planning and becomes even more important if you use multiple credit cards. This cycle acts as the bedrock on which various facets, including your credit limit, credit usage, and available credit, depend upon. The billing cycle can range between 28 and 32 days depending on the credit card issuer. A statement detailing your dues is generated at the end of the cycle.
Credit Card Billing Cycle: The Process Involved
- Once you activate your credit card, the billing cycle will begin. At this point in time, your card can have zero outstanding balance. However, if the card issuer has levied credit card charges, such as the joining fee, it will be included in your first bill. There can also be a scenario where you have opted for the balance transfer facility and transferred the previous outstanding to a new credit card. In this case, the total outstanding along with the charges for balance transfer will be included in your bill.
- When you start using your credit card, you can use it for making purchases online or via Point of Sales (PoS) terminals across stores. Next, you can also use your credit card to withdraw cash, as per the stipulated limit, from ATMs. These charges will be included in the billing cycle. Remember, you can also pay your purchases by converting them into EMIs. If you have made such a choice, then the EMI amount will be included in your bill. On certain transactions, such as cash withdrawal, or EMI payments, the card issuer could levy finance charges, which again will reflect in your bill. As for the deductions, if you receive offers such as a fuel surcharge waiver, it will be deducted from your billed amount.
- The billing cycle can be explained with the help of an example. Suppose your credit card billing cycle is of 30 days, and the bill is generated on the 3rd of each month. This means that your billing cycle will commence from the 2nd of the previous month and continue till the 3rd of the present month. All the transactions along with the outstanding balance and the charges will thus be included in your present credit card statement. If you have made any transaction after the billing cycle, it will be included in the next bill. For instance, if you have made a purchase on the 4th – while your billing cycle ends on the 3rd –it will show only in the next statement.
Credit Card Minimum Payment
Once you receive your credit card statement, you have two alternatives: you can pay the entire outstanding or opt to pay only the minimum balance. Minimum charges — paid to make sure that your account is being maintained — are typically a small part of your total outstanding. There are both pros and cons to opting to make the minimum payment for your credit card. While making the minimum payments helps you avoid the imposition of charges, such as late payment fees, the remaining outstanding balance can attract a high-interest rate of up to 48%.
Financial experts advise against making only the minimum payment because of the high rate of interest levied on the amount outstanding. The high-interest rate can considerably increase the total amount of your bill.
Credit Card Due Date
Once you receive your credit card statement, the due date for payment will be clearly mentioned. Depending upon the credit card issuer, the due date can range between 21 and 25 days. For instance, if your credit card statement is generated on the 3rd of a month, the due date can range anywhere between 25th or 28th.
You can choose to pay your credit card bill on or before the due date. But failure to pay the outstanding amount after the due date can result in fines, such as late payment fees. Non-payment of the dues can also negatively impact your CIBIL score.
If you are a credit cardholder then understanding the concepts of the billing cycle, due date, and the minimum payment is of utmost importance. Once you know the processes involved, it can help you manage your finances in a better way. If you are looking to apply for a new credit card, then the Finserv MARKETS App can aid you by providing access to the top credit cards. You can choose from a wide range of online credit cards, including Bajaj Finserv RBL credit card, SBI credit card, and more.
Suggested read: How To Use Credit Card Safely