What is a credit card billing cycle and how does it impact your credit score?

Credit cards can be a great asset, but they require some basic knowledge to make sure you're getting the most benefit. There are dozens of terms that a cardholder should become familiar with, and understanding what your billing cycle is can be one of the most helpful places to start. Like the name hints, a billing cycle has to do with the bill owed to your card issuer for making transactions with your credit card. But knowing the specifics can help you save significantly in interest fees and late charges. Before you sign up for a credit card, you'll want to know exactly what happens during a credit card billing cycle and how it affects the amount you owe every month. Below, CNBC Select reviews what a credit card billing cycle is, how it affects your credit score and where you can find it on your credit card statement.

What is a credit card billing cycle?

A billing cycle, or billing period, is the length of time between the last statement closing date and the next. Most financial products that require monthly payments, such as credit cards, student loans and auto loans, have billing cycles. Your credit card billing cycle will typically last anywhere from 28 to 31 days, depending on the card issuer. The amount of days in your billing cycle may fluctuate month to month, since the number of days in each month varies, but there are regulations to ensure that they are as "equal" as possible. To understand the definition of "equal," you can look to the Consumer Financial Protection Bureau which states that a billing cycle is equal if the number of days in the cycle does not vary more than four days from a fixed day (such as, the first Tuesday of each month) or date (such as, the tenth of each month). This ensure that one important thing remains constant — your due date. According to the CARD Act, your due date is required to remain the same every billing cycle. And your due date must be at least 21 days from the end of a billing cycle, giving you time to budget your payments. The period of time between the end of a billing cycle and when your bill is due is called your grace period, and if you pay your balance off within this time, you won't incur interest.

Where to find your billing cycle

You can find your credit card billing cycle listed on your monthly statement. You'll notice the start and end dates for your billing period are typically located on the first page of your statement, near the balance. Your card issuer may list the number of days in your billing cycle, or you'll have to do some counting. You can count the number of days beginning with the opening date and ending with the closing date. For example, if the first day of your billing cycle is January 23 and the last day is February 20, your billing cycle would be 29 days long.

How your billing cycle affects your credit score

The majority of credit card issuers report your account information to the main three credit bureaus — Experian, Equifax and TransUnion — on a monthly basis. Whatever actions you take during a billing cycle, such as new purchases, balance transfers or minimum payments, will be sent to at least one bureau at the end of each billing cycle and appear on your credit report. For instance, if you have a $5,000 balance at the end of your billing cycle, that information will be sent to the credit bureaus. Any reported information can influence your credit score.

Can you change the dates of a billing cycle?

While you can't choose the dates or lengths of your billing cycle, you can adjust your payment due date, which causes your billing cycle dates to shift. Many card issuers let you choose from a variety of dates, so you can select the best due date for your cash flow. Keep in mind, you generally can't adjust your payment due date every month and it can take one or more billing cycles to take effect. For instance, the agreements of my Citi® Double Cash Card state, "You can only change your due date once every 90 days. It may take 1-2 payment cycles for this change to come into effect."

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How to avoid interest with a credit card grace period

Taking advantage of your credit card’s grace period can save you money on interest and help you pay off debt faster. Here's everything you need to know.

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Do you often get stuck paying interest on your credit card purchases? If so, a credit card grace period could be your new best friend.

The grace period is the gap between the end of your credit card’s billing cycle and the date your payment is due. With most credit cards, if you pay your balance in full and have no cash advances outstanding, you won’t be charged interest on new purchases you make during this interval.

If your credit card offers a grace period — and you’ll want to check your credit card agreement, just to be sure — you may be able to save on interest with a bit of planning and foresight.

Here are three factors to pay attention to when it comes to credit card grace periods.

The closing date on your credit card statement The payment due date Your credit card balance

We’ll look at how to use all three factors to your advantage, but first let’s try to clear up any questions you might have about how grace periods actually work.

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How to determine your credit card grace period

Any new purchases you make after your statement closing date, which marks the end of that month’s billing cycle, will go on the following month’s billing cycle. The grace period falls between that closing date and your next monthly payment due date.

Whether you’ll save interest during a grace period depends on the date you make a payment and whether you carry a balance forward.

Confused? Let’s look at a couple of examples.

Say you make your payment by the due date and pay off the balance in full. With no balance carried forward, you’ll receive an interest-free grace period for new purchases in the current billing cycle.

On the other hand, if you pay off most of a $1,000 balance but leave even $10 unpaid, each new purchase you make during the current billing cycle, plus the unpaid balance, will be assessed interest. That may seem harsh, but it just goes to show how crucial it is to pay off your balance in full.

Does every credit card have a grace period?

No. Credit card issuers are not required to offer a grace period.

The good news is that many still do. And if your card has a grace period, the issuer must ensure that bills are mailed or delivered at least 21 days before the due date.

Do grace periods apply to cash advances or convenience checks?

Generally, no.

As the Consumer Financial Protection Bureau notes: “If you use your card to get a cash advance or use a check you received from your card issuer, generally you will start paying interest as of the date of the transaction.”

Now that you know how a credit card grace period works, let’s look at some ways to make the grace period work to your advantage.

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How to extend your credit card grace period

You probably won’t get an extended grace period simply by asking for one outright, says Randall Yates, credit expert and CEO of online mortgage marketplace The Lenders Network. Instead, try contacting the credit card company and asking to change your billing cycle date. “This could buy you another week before interest is charged,” he says.

You can also give yourself some more time by making purchases immediately after the closing date. “If you make a purchase at the beginning of a billing cycle, your bill won’t be due until about 30 days later, at the end of the billing cycle,” says Yates. “If you pay your balance in full by the due date, you’ll have the most time to carry the balance before interest starts accumulating.”

Keeping this in mind, a credit card grace period can really come in handy for saving interest on expensive purchases that may take several weeks to pay off.

“Most credit card companies will charge interest on a daily basis,” says Yates, “so even if you’re not able to pay your balance off before the end of the grace period, you’ll only be charged interest for each day that you carry a balance.”

This can be a double-edged sword, though. The more days you carry a balance, the more interest you’ll be charged. As a general rule, try to pay off your balance as soon as possible and don’t let an extra day or two slip by.

How to manage your credit card payments

If you’re having a hard time juggling credit card bills, here are some steps you can take to make your life a bit easier.

Create a budget. “You can’t just haphazardly keep track of monthly bills and expenses and hope to pay off your balances,” says David Bakke, a personal finance expert with Money Crashers . If you do an online search for “monthly budget form,” you’ll find many different types to choose from.

Cut expenses. Reduce what you’re paying for cable, groceries and other monthly bills, if possible. Bakke advises mapping out short- and long-term goals for paying off credit card debt. Use the Credit Karma Debt Payment Calculator to help create a personalized debt payment plan.

Set up auto pay on your credit card accounts. “Even just paying the minimum each month will ensure you’re never late . You can always pay more anytime you want,” says Yates.

Simplify billing dates. “You can call the credit card companies and have them change your billing dates so they’re all due at the same time of month and easy to keep track of,” says Yates.

Bottom line

Knowing how your credit card grace period works can help you manage your credit card balance and avoid unnecessary interest. Not only can you save money on interest, but paying attention to your balances might also motivate you to pay them off faster. How’s that for a win-win?

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How to use your grace period to avoid paying interest

Nobody enjoys paying credit card interest. Luckily, most credit cards come with a built-in feature that cardholders can use to pay off their balances interest-free: the grace period.

Credit card interest rates can take your balance from manageable to overwhelming very quickly. Paying off your monthly statement balances in full within your grace period is one of the best ways to avoid getting into credit card debt. As long as you pay off your balance before your grace period expires, you can make purchases on your credit card without paying interest.

Here’s everything you need to know about grace periods on your credit card.

What is a credit card grace period?

A credit card grace period is a set period of time that a cardholder has to pay off their balance before their credit card issuer begins to charge them interest. This gives you time after you receive your monthly statement to pay your bill without being penalized. The grace period is a minimum of 21 days, and falls between the time your billing cycle closes and the due date for your payment.

Once your grace period ends, both unpaid balances and new balances will begin to accrue interest according to your credit card’s APR. Certain types of transactions, such as cash advances, are not subject to a grace period and begin accruing interest as soon as the transaction is completed.

While some of the best credit cards offer grace periods that last as long as 25 days, other credit cards do not offer grace periods at all or only offer very short grace periods. Pay attention to the fine print of your credit card agreement so you know exactly how long you have to pay off your balance before interest charges begin to accrue.

How long is the grace period on a credit card?

Thanks to the Credit CARD Act of 2009, lenders are legally required to give cardholders a minimum of 21 days between the end of their monthly billing cycle and their bill due date to pay off their credit card balance before interest charges kick in. Most major credit cards count those 21 days as a grace period, and don’t charge interest on that billing cycle’s balance until the grace period is over.

How to make the most of your grace period

As long as you stay on top of your credit card balance, you can charge new purchases to your credit card and pay them off before your due date in order to avoid paying interest. But if you want to use your grace period to avoid interest charges, consider taking the following steps:

Pay your monthly statement in full and on time

Paying the full amount will help you avoid any interest charges. If you can’t pay your statement balance off completely, try to make a smaller payment (not less than the minimum payment). Any amount remaining on your statement balance will begin to accrue interest — as will any new purchases charged to the card — but the smaller the balance you have, the less you’ll spend on interest.

Give yourself added time between purchases

If you want to get even more usage out of your grace period, time your credit card purchases to take advantage of your card’s billing cycle. Remember, your grace period begins when your billing cycle closes. So if you use your credit card for a large purchase at the beginning of your billing cycle, you have the full cycle plus the grace period before your credit card issuer will begin charging interest on that purchase. That could give you nearly two months of zero-interest borrowing.

Create a budget

It will be easier to manage your monthly expenses if you establish a budget. Additionally, once you understand how to make the most of your grace period, you can treat your credit card like an interest-free loan. As long as you pay your statement balance in full every month before your grace period ends, you won’t have to worry about paying interest on any of your purchases.

What happens if you carry a balance after your grace period?

If you do not pay off your statement balance in full before your grace period ends, you lose the grace period on your credit card. This means that both your current balance and any new purchases will begin accruing interest immediately.

After a few billing cycles of full payments, your credit card issuer is likely to reinstate your grace period if you no longer carry a balance.

If you’d like to avoid paying interest on your credit card, you have two options. You can pay off your balance before your grace period ends, or you can apply for a zero-interest credit card that offers 0 percent APR on purchases for up to 21 months. Using a credit card with a 0 percent APR can save a decent amount of money if you know you won’t be able to pay your balance right away. If you take advantage of that full 21-month window, you can save a lot on interest payments.

Interest can add up quickly

Let’s look at how quickly interest can add up if you don’t have a 0 percent APR offer. If you have an APR of 16.99 percent (and assuming you make no new purchases during the billing period), your daily interest rate is approximately 0.05 percent. So, if your balance is $100 at the beginning of your billing cycle, by the end of the day, your balance will be up 0.05 cents to $100.05. Then the next day, you will be charged 0.05 percent interest again, but on the new higher balance of $100.05 which increases the balance to $100.10 by the end of the day. Then the cycle keeps continuing and the amount you owe in interest grows.

Can you extend your grace period?

There isn’t a hard and fast rule when it comes to extending your grace period. In most cases, you won’t be granted an extended grace period simply by asking your issuer. However, you could try requesting a different billing cycle date to buy yourself extra time before interest is applied to your balance.

Additionally, you could buy yourself even more time by making purchases with your card immediately after the closing date, and at the beginning of the next billing cycle. As long as you have a plan to pay your balance before its due date, you will be able to carry a balance for as long as possible without being charged interest.

The bottom line

The grace period is a lesser-known and often underutilized perk of owning a credit card. While it is best to pay off your balance in full as soon as you are able, your grace period can give you a little extra time to pay off your balance in full so that you don’t get bogged down in costly added interest.