Credit cards are among the most used types of cards due to the rewards they come with and their ability to help holders handle emergencies or unplanned expenses. However, like with a typical loan, you are expected to repay a loan taken on a credit card before the due date, which is quite different from your closing date. The closing date is the last day of your billing cycle, while the due date is when your payment falls due. Purchases made before your closing date will appear in your current monthly statement, but what happens if you use your card on the closing date?
If you use your credit card on the closing date – which is the last day of your billing cycle – the purchases made will reflect in your current monthly statement.
Some people prefer to use their credit card before the closing date, while others prefer to use it on or after the closing date. While we may be aware of what happens when we use our credit cards before the closing date, many of us don’t know what happens when we use them on the closing date. Below, I have explained what happens when you use your credit card on the closing date.
What Happens if I Use My Credit Card on the Closing Date?
To understand what happens when you use your credit card on the closing date, I’d like to explain what a closing date is, including some other dates that are associated with credit card usage.
What Is a Statement Closing Date?
A credit card statement closing date is the last day of your monthly billing cycle. Purchases made after this date will be displayed on the next month’s statement. This is also the date on which your credit card issuer calculates interest charges. For most credit cards, you have a grace period of 21 to 25 days between the statement closing date and the day your payment is due.
While we are on it: are you aware that paying your credit card bill before its due date can reduce your credit utilization ratio, an essential factor in increasing your credit score? You’ll avoid late fees as well, another bonus for your credit score, and when you settle your credit card in full, you’ll save money on interest charges.
So along with your statement closing date, your payment due date is crucial as well.
What Is Payment Due Date?
A credit card payment due date is your deadline for making an early payment. You will find your payment due date on your statement every month, including your balance and your minimum payment. This is the last day to make a minimum payment before incurring late fees or sanctions that could worsen your situation.
It often falls on the same calendar date. For instance, if your payment due date is June 26th, your next payment due date will be July 26th and every 26th day of the month moving forward.
Here is a tip that’ll help: ask your credit card issuer to change your due date if it falls at a bad time of the month. For instance, if you are always cash-strapped at the end of the month, consider shifting to an earlier due date. Your statement cycle will be altered accordingly.
What Are Other Crucial Credit Card Dates?
Annual fee due date: is the annual fee charged to keep a card open. The annual fee due date can vary between card issuers, but it generally corresponds to your account anniversary.
Introductory offer date: This is when some special rates and offers no longer apply. Some credit cards come with introductory deals and terms, which end after a specified period of time.
Balance transfer deals and introductory interest rates are common introductory offers, and it is essential you remember the offer date so you know when the terms apply to your purchases. These offers usually start when your application is approved, not when you get your card.
Credit card expiration date: is printed on most credit cards. It isn’t the date your account will be shut down. Instead, it’s the date your card expires. Most credit card issuers will mail a replacement card before your expiration date, and sometimes your card number will be modified. But not often. On getting the new card, destroy your old card and adhere to the instructions to activate your new one.
Transaction date: marks the day when a purchase or charge was made with your card. It is different from your posting date, which is when your purchases and charges are applied to your account, usually trailing 2 or 3 days behind the transaction date.
How Your Statement Closing Date Affects Your Expenses?
If you are on a tight budget or are conscious of your finances, your statement closing date affects your monthly expenses in significant ways.
First off, credit card companies charge interest based on the balance on your card on that closing date. If your card has a balance of $2,000 and you pay it completely on the day of closing, you pay zero interest on it. However, if you pay it completely on the day after closing, you pay interest on the entire $2,000.
Your next minimum payment is also evaluated using the balance you had on your closing date. While it doesn’t make sense to make only the minimum payment on a credit card, there may be periods when you are cash-strapped, and it is your only alternative. In such cases, that minimum could be much higher or lower depending on what your balance is on your closing date.
How Your Statement Closing Date Affects Your Credit?
If you are paying attention to your credit, you may know that one huge factor in your credit score is your credit utilization ratio. This is the percentage of your revolving credit that you are currently using.
To shed more light, “revolving credit” is any type of credit you can use, pay off, and then use again. For example, credit cards are revolving credit because you can max them out, pay down the balance, and then re-use the balance that you had paid off. The same is true for lines of credit. This is different from credit products like car loans that you get once and settle once.
To calculate your credit utilization ratio, credit bureaus add up your credit limits for all your credit cards and other forms of revolving credit. Then, they add up the balances on all those revolving credit products and see what percentage of your available credit is being used. When the credit card companies report your data to the credit bureaus each month, they report your balance as it was on your statement closing date.
Thus, for calculation’s sake, let’s say you have one credit card with a $2,000 limit, and you use it to initiate a $1,000 purchase. If you pay it off the day before your closing date, your credit utilization ratio is 0%. However, if you pay it off the day after your closing date, the ratio is 50%, which can visibly affect your credit score.
How to Use Your Statement Closing Date Wisely?
Having understood what statement closing date is and how it affects you, how can you put such knowledge to good use? Start by checking when your closing date is. It should be on a similar date every month, although credit card companies will sometimes change that date, so check your closing date regularly.
Afterward, put your monthly closing date on the calendar, so you always know when it’ll be. Finally, if possible, put a recurring monthly reminder on your calendar to make your payment many days before your closing date. This way, you will always have the lowest possible balance when your closing date arrives. Your wallet and credit score will be grateful.
Using Your Credit Card on the Closing Date:
What happens when you use your credit card to pay for a service or purchase an item on the closing date? This is a question many car owners ask. If you are among such individuals, here is a brief answer.
If you use your credit card on the closing date, which is the last day of your monthly billing cycle, the purchase or payment made will reflect in your current monthly statement and not the next.
For instance, if you use your credit card on April 25th, which is the closing date of your card, the purchase or payment made will reflect on the April monthly statement and not that of May.
4 Best Times to Make a Credit Card Payment:
The quote “timing is everything” definitely applies to your credit card payment. Late payments have circumstances you should avoid if possible. Not only will you attract late fees if you pay past your due date, but you also damage your credit and have your interest rate raised to the highest penalty rate.
Even when you pay early, the timing of your credit card payment can also affect the amount of interest you pay when you carry a balance. In some scenarios, paying earlier in the billing cycle can decrease the amount of interest you pay and increase your credit score. If you are eager to decide to the ideal time to make your credit card payment, here are some tips to follow.
- Before the due date:
Of course, it is a no-brainer that making at least the minimum payment before the cutoff time on the due date will keep your account in good standing and help you steer clear from payment penalties.
Missing your credit card payment, even by a few minutes, will lead to you paying a late fee. You may as well trigger the penalty fee if your account becomes 60 days past due, that is, if you miss two payments in a row. Late payments can also cause you to lose a promotional interest rate or forfeit any earned rewards.
If you are trying to make a dying minute credit card payment, you can pay online or via your phone, provided you do so by the due date.
- Before the account statement closing date:
To ensure a lower credit card balance is reported to the credit bureaus in the current month, make your credit card payment before the account statement closing date. Having a high credit card balance updated on your credit report can increase your credit utilization and cost you credit score points. Having the best possible credit score is crucial if you plan to apply for a significant loan, such as a mortgage or car loan before your next account statement closing date comes around.
Otherwise, you can ensure a lower balance is reported to the credit bureaus by first paying off your credit card. Then, once you have reduced your balance, avoid making any new credit card purchases before your following statement’s closing date.
- Early in the billing cycle:
Your due date may fall later in the billing cycle, but paying your credit card early in the billing cycle can lessen the amount of your finance charge, particularly if you don’t make any other purchases during the cycle. That is because your credit card issuer likely uses either the daily balance or average daily balance technique to calculate your finance charge. In both cases, having a lower balance for more days in the month will lead to a lower finance charge.
- When your direct deposit hits:
Making your credit card payment immediately after you get paid ensures you can afford the payment and lessens the probability that you’ll have a returned payment, a breach that can result in a fee.
You can send your payment even if your payment isn’t due for many days, for peace of mind knowing your payment is covered. Before sending your payment, inspect your other bills to ensure that you aren’t trying to pay too much from one paycheck. If you are paid weekly or semi-monthly, you may be able to put off some credit card payments until your next paycheck.