A Complete Guide to a Credit Card Cycle and its Importance

The credit card lifecycle has different phases. One of the important components to take into consideration as a user is the billing cycle. Every credit card comes with a billing cycle – some for 30 days, others for 28 days – depending on the issuer offering the credit card. 

Understanding this is crucial, as failing to pay bills on time can adversely affect your credit score. However, this is different from a credit cycle, which is a concept of economics. As such, understanding the credit cycle and how the credit card billing cycle works can give you a clear picture.

A Brief Understanding of the Credit Cycle

It is referred to as the cyclical fluctuation in:

• Interest rates
• Availability of loans 

This cycle has two phases that are intertwined with each other:

• When the economy is contracting, lenders are less willing to give loans and, if so, offer loans at a high interest rate
• When it’s expanding, lender tends to give loans at a low interest rate 

Hence, during recessions, credit availability is low and at a high interest rate. However, when the economy is on an upswing, you can avail of personal loans easily at lower interest rates of interest. 

Credit Card’s Lifecycle

This principle above is very different from a credit card lifecycle, which basically involves everything from getting a card to closing your account. On the whole, it involved the following:

• Getting a new card from a credit card company on approval on your application 
• Activating your card via online and offline modes within 30 days of receiving it 
• Renewing your card once it expires by getting a new card and activating it 
• Replacing your card if it is lost or stolen
• Closing the credit card account 

How the Billing Cycle Works 

Within a card’s lifecycle, the only way that you can maintain good financial health is by paying your credit card bills on time. For this, understanding your issuer’s bill payment cycle is crucial. It can help you plan your credit utilisation during the interest-free period and avoid late payment penalties. 

Understand how the billing cycle works for credit card  with an example: 

• Say your bill generation date is 10 March
• Thus, your new billing cycle starts on 11 February and ends on 10 March
• At the end of your billing cycle, the bill is generated, showcasing all your transactions
• Now, if your due date is the 28^th of March, you must pay the amount before the due date to avoid any extra fees and charges

You may assume that the repayment date is the bill generation date, which is not true. In fact, the issuer provides an interest-free period of up to 25 days to pay the bill. This is known as the grace period on the bill. You can pay the credit card bills during the grace period to avoid high interest rates later. In fact, as per the RBI, you get 3 days more to pay your bill after the payment due date. It is only after 3 days that you will be charged a late payment fee. 

Also Read: How to Read Credit Card Statements

Important Factors to Consider

Knowing these terms will help you to clearly understand your credit card cycle and plan repayment. 

• Statement Date

This is the date on which you receive your statement after the completion of the billing cycle. After this date, the new billing cycle begins. 

• Credit Card Due Date

This is the day when you have to pay your complete credit card bill to avoid any charges. The issuer decides this date based on your credit card cycle, which remains fixed throughout the billing cycle.

• Minimum Amount Due

In case of financial shortages, you can only pay a minimum amount. This is generally 5% of the total billing amount. The rest of the outstanding amount will be carried forward to your next billing cycle. This way you avoid late fees, but you still need to pay interest on the outstanding dues. 

Repayment behaviour is an important part of how you manage your credit card. Understanding when to pay your bills can help you make the best use of your credit card. This way, you can also enjoy the maximum interest-free period. 

For instance, you can get an interest-free period of up to 50 days with the Fibe Axis Bank Credit Card. Not only does it come with zero annual or joining fee, but it also offers you perks like up to 3% cashback.

You can also enjoy hassle-free UPI payment and other benefits like a waiver of fuel surcharge and free access to domestic airport lounges. So, what are you waiting for? Download the Fibe App or register on our website to get it now!

FAQs on Credit Cycle

How does the credit cycle impact interest rates?

Depending on the economy, the credit cycle differs. When it peaks, loans are easily available and interest rates are more affordable. 

What is a credit card life cycle?

It includes the following stages:

• Application
• Issuance
• Activation
• Expiry and Renewal
• Replacement
• Closure

Can I change my billing cycle to align with my pay dates?

Yes, you can change your card’s billing cycle by contacting the issuer to align with the time you get your salary. This way, you can pay bills on time and maintain your creditworthiness. 

How to best time my purchase as per the credit card cycle?

It is best to make a big-ticket purchase at the beginning of the billing cycle. This gives you the maximum amount to repay.