What's the difference between payments and billing periods for my credit card?

To keep a good credit score and avoid paying late penalties, it’s imperative to pay your credit card bills on time. While it is a good practice to try and pay off your bills right away, some cardholders might be surprised that they don’t need to. 

In this article, we’ll go over the billing cycle for a credit card and discuss key things to remember. Not only will this article make you a more responsible cardholder, but it’ll also help you avoid late penalties and credit score deductions.

First, we’ll start with the billing period. The billing period is roughly a 31 day window of charges made to your credit card that must eventually be paid back by the cardholder. However, the cardholder does not need to pay back this interest immediately, but they must make the minimum payment. In addition, any parts of the balance not paid back will be charged interest. So while you don’t have to pay back all of your credit card balance at the end of the billing period, you should still try to pay off a large portion of it to prevent large interest payments from accumulating. 

Next is the payment period. The payment period is the time you have to pay back your billing statement. In theory, this payment period could be as long as you want, however you’ll face hefty fees and interest payments on your missed payments. As a result, it’s best to try and pay off your billing statement as soon as possible so you don’t forget about it and end up paying late fees. Some credit card companies will also offer a grace period for cardholders. Grace periods allow customers to have some time to pay back their credit card balance before any interest is charged on the balance. Certain credit cards may not come with grace periods, so it’s important to check with your credit card servicer about their grace period policies.

One very important note is that the grace period will only apply to cardholders that have not carried an outstanding balance between payment periods. So, if you fail to pay off all of your balance during the previous payment period, at the start of the next payment period, the charges from both months will have accumulated interest until they are all paid off. 

If you fail to make your payment on time, you could be subject to a multitude of penalties. Some credit cards will come with a penalty APR that will activate if a certain number of late payments are made. This penalty APR can be noticeably higher than your original purchase APR, costing hundreds of extra dollars. Similarly, you may have to pay late fees, which are capped at $40 by law. Some credit cards will also offer forgiveness on the first late payment, meaning that you have some breathing room before any fees are applied.