Understanding how a card's billing cycle works

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
This will be my very first statement. I've been told by my credit card company that I have to pay my balance typically around the 24th of every month and then my statement will come out around the 27th of every month. If I pay off my balance in full, will it show as a $0 balance on my statement? Also, would it be reported that I'm not using any of my available credit? – Virginia


Dear Virginia,
Like most credit card companies, the one you’re working with expects at least the minimum payment to be made by a specific date of the month. In your case, it’s the 24th, although you might be able to move it to a date that’s more convenient for you by calling the issuer and asking for an adjustment. But that’s for later, should you need it.

The answer to your first question is yes. If you pay the total of what you charged by the end of the billing cycle, your credit card statement will indicate a zero balance.

A detailed summary of what you charged with the credit card will appear on your monthly statement, which you will receive in a document dated on the 27th. That statement will include all the places where you used the card and when, and how much you spent at each place. If there is an outstanding balance, your statement will indicate what it is, plus any applied finance fees.

You don’t have to wait for the statement to be mailed to you to know what’s up. In fact, you shouldn’t! Instead, make a habit of monitoring your card activity on the company’s website at least weekly. This way you’ll catch any errors or evidence of fraud quickly, and can rectify the problem without delay. Or, if you charge too much for easy debt deletion, you’ll detect that, too. At that point you can suspend swiping so you don’t get in over your head.

On to your second question, regarding your credit reports. Like other lenders, credit card companies furnish a steady stream of information about your account activity to the big three credit bureaus, TransUnion, Equifax and Experian. Once these consumer credit reporting agencies receive the data, it will be placed on your credit reports. Since these reports are constantly being updated, the information can change from one day to the next. You can pull your credit report for free at mycreditcards.com. However, depending on what day of the month your card issuer reports to the credit bureau, a balance may show up on your credit reports, even though you paid it in full on the due date. So, it's best to call the card issuer and ask when it reports data to the bureaus so you can make sure you pay any balance off before that date.

It’s best to keep your card active, though, by occasionally charging something you would have bought anyway, then repaying the entire balance.

Do note that the credit scoring formula penalizes you for charging too close to your credit limit. You want to keep your credit utilization ratio (the amount of debt you carry each month in relation to your credit limit) low. So, if your credit limit is $2,000, try not to charge more than a few hundred dollars each month. If you do happen to incur a large balance, you can log on to your account and pay it down quickly or in increments before the due date.

This is the kind of behavior that not only keeps you out of expensive debt, but that will eventually result in a healthy credit rating. Credit scores, such as FICO and VantageScore, are derived from the financial information listed on your credit reports. These scores predict lending risk, and the numbers fluctuate with the data listed on your credit reports.

Over time, your credit scores will increase with regular but positive borrowing and repaying. The trick is to charge regularly, but always pay your bills by the date listed on your statement (if not before) and always in full. As you add more accounts to your credit profile and treat them just as perfectly, your scores will rise dramatically — and your credit options will become ever more plentiful and fabulous!

See related: How to change your credit card's due date, 5 sneaky credit card tricks — and how to beat the bank

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Updated: 01-21-2019