How the Credit Card Billing Process Works?
Besides using a credit card in a convenient way to purchase goods and services, it is also necessary to understand how they work. Knowing the features of credit cards alone will not let you know how they affect you. For that you must have a clear idea how the credit card billing process works which can avoid unnecessary charges along the way. Here is a brief explanation of the credit card billing process-
Credit Limits and Available Credit- There is a credit limit in your credit card. During a billing cycle, you can only charge up to your credit limit without any penalty. You will be charged an over the limit fee as penalty, if you charge more than your credit limit. The credit issuer can also raise your interest rate to the default rate if you cross your credit limit. The higher your credit card balance, the lower will be your credit utilization. It is advised to keep your card balances within 10% to 30% of your credit limit.
Billing Cycles and Billing Statements- A billing statement will be mailed to you at the end of each billing cycle. The period of a billing cycle varies with different credit cards, but usually ranges from 29 days to 31 days. Your statement will consist of the balance at the beginning of the billing cycle (what was due from the previous month). It will contain in detail the credit card charges and payments as well as credits and fees in the current billing cycle. From your previous billing cycle the fees and charges are added to the balance, while payments and credits are deducted to come up with your current balance.
Finance Charges and Grace Periods- If you are due with balance from the previous billing cycle, a finance charge will be applied. The finance charge is calculated by using the annual percentage rate (APR) and balance. There are six methods to calculate your finance charge. To avoid a finance charge, you must pay your balance within the grace period. Normally grace period is between 21 and 25 days. Your next billing statement will add a finance charge, if you don’t pat your balance in full.
Minimum Payments and Late Fees- Your credit card minimum payment is listed on your billing statement which you must pay before the payment due date to be considered current. Your minimum payment is calculated as a percentage of your credit card balance. If you make payments after the due date or less than the minimum payments, your payment is considered late and you will be charged a late fee. If you cross 30 days in making your payment, the late payment will be stated on your credit report. To avoid late payment penalties, you must negotiate with your credit card issuer and make at least the minimum payment.
The Credit Card Process Ongoing- Keep in mind the quoted credit card process applies to revolving credit cards rather than charge cards. As you make charges and payments with your credit card, your balance and available credit will rise and fall. Be aware of your billing statement for minimum payment and due date. To maintain a good credit you should make at least the minimum payments before the due date and stay well below your credit limit.
The process above lets a cardholder to resolve their credit cards related problem to avoiding unnecessary penalties and fees.
If I don’t pay your credit card debts then bank will assign you in default list and turn your account over to a collection agency.
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