Your Guide to Understanding a Payment Due Date vs. Closing Date on Credit Cards
All the dates and deadlines on a credit card can be confusing. We’re here to make sense of what you’ll see on a credit card statement.
Author: Arro Team
December 20, 2022|Blog
When you open up your credit card statement, the mix of dates, terms, and dollar amounts is enough to make your head spin. But in order to use a credit card responsibly, it’s important to get this info straight.
If you're unfamiliar with how to read your monthly bill, there’s a good chance you’re wondering about the differences between a closing date, payment due date, billing cycle, and grace period on a credit card. In this post, we'll break down everything you need to know about the important dates you see on your credit card statement.
What Is the Closing Date on a Credit Card?
The closing date on a credit card is the last day of the billing cycle. To better understand how it works, let’s first talk about what a billing cycle is.
It's also known as the billing period or may be listed as "open-to-close dates." A credit card billing cycle is the timeframe between one closing date and the next, and is typically 28-31 days long — but it won’t usually follow a calendar month (e.g. Dec. 1-31) since it’s based on when your account was established. The closing date is the last day in that cycle.
A closing date is also commonly called a statement date because it's when the lender creates your billing statement. The word "closing" can be misleading because your card isn't being closed. Instead, your monthly window of activity is closed out and reported, allowing a new billing cycle to begin.
The credit card statement closing date is when your credit card issuer:
Tallies your activity for the billing cycle (purchases, cash advances, payments, credits) and sends your statement balance for the month
Determines your minimum payment to keep your account in good standing
Calculates any interest charges
Typically reports your balance and activity to the credit bureaus
You can usually find your closing date on the first page of your monthly statement, listed in your account online, or you can call your credit card issuer to ask. Any new purchases made after your closing date will be included in your next billing cycle.
Payment Due Date vs. Closing Date
Do you know the difference between the payment due date and the closing date for a credit card? It's an important part of understanding how credit cards work because it can definitely impact your personal finances.
Your payment due date is just as it sounds — it's the date you're required to pay your credit card issuer by to be considered on time. The closing date is the final day of your credit card billing cycle and when your billing statement is created.
The payment due date is at least 21 days after the closing date and is on the same date each month (or the next business day if it falls on a weekend). Per federal law, the credit card company can’t change it unless you, as the cardholder, request it.
You can make one credit card payment or several by the due date. As long as the total sum of your payments is at least the minimum required, you're good to go and won’t face any late fees.
If you pay after your credit card due date, you could face the following:
Interest rate hike (penalty APR)
Loss of promotional rates
Interest charges on the balance
As we always say, minimum payment = minimum benefit to you. By paying the minimum payment by the due date, you're making your payment on time, which is important to maintain or increase your credit score. However, you’ll be charged interest on the remaining balance.
For example, let’s say the balance on your credit card statement is $1,500, with a minimum payment of $35 due by Dec. 15:
If you pay $35 (the minimum payment due) on Dec. 12, you won’t be charged a late fee, but you will be charged interest on your next statement because you didn’t pay the entire credit card statement balance.
If you pay $1,500 (the balance on your statement) on Dec. 12, you won’t be charged a late fee, and you won’t be charged interest because you paid the full credit card statement balance.
Regardless of the amount you pay, if you’re even one day late (in this case, Dec. 16 or after), your credit card company will charge a late fee.
We recommend avoiding the habit of only making the minimum payment. It not only extends the amount of time it takes to pay your balance down, but also means you’ll owe high amounts of interest. And wouldn’t you rather put that cash toward something else?
Remember how we said the period between your closing date and payment due date has to be at least 21 days long? Well, during this time, you might also have a grace period in effect. Here’s how it fits into the picture.
A grace period is a number of days (at least 21) after your closing date that you’re not charged interest on any new purchases. You initially receive a grace period if you start off paying your statement balance in full each month.
To maintain a grace period for the next billing period, you have to continue to pay your entire statement balance by the end of the grace period/payment due date. Otherwise, your new purchases will be subject to interest on the next statement. Basically, your grace period for the current billing cycle depends on your prior month’s payment. If you lose it, it can take a couple months of paying the statement balance in full before you regain the grace period going forward.
Note that not all credit card issuers offer grace periods, so check your credit card agreement or ask your card issuer. Grace periods also don't apply to cash advances. Even if you pay the entire balance by the due date on your credit card bill, you’ll still owe interest on the portion of your balance from a cash advance.
How Your Payment Due Date and Closing Date Impact Your Credit Score
Avoiding late fees and interest charges aren’t the only reasons your payment due date and closing date matter.
What else is at play here? You guessed it — your credit score. Here’s what you should know.
Payment Due Date
Paying your credit card account late by even one day hurts your finances — you'll face possible late fees and penalty rates. But, if your payment is made 30 days or more past due, it’ll be reported as a late payment to the credit bureaus. Your payment history is a significant factor in your credit score calculation, so making your monthly payment by your due date is crucial. In fact, late payments stay on your credit report for up to seven years, so just one occurrence can hurt your credit score for a long time.
When you apply for new credit cards or loans in the future, you don’t want lenders to see late payments in your credit history when they review your credit report. A history of late payments can make you appear less reliable as a borrower and less likely to be approved for loans or offered lower interest rates.
When you make late payments, your credit card company can remove any promotional rates you may have, which can often be as low as 0%. They can also implement a penalty APR (interest rate) on your existing balance. But get this: If you’re 60 days late, your penalty rate will also apply to all new purchases. Penalty rates can be close to 30%, which can wreak havoc on your finances.
Higher interest rates make it take longer to pay down your credit card debt. More of your payment goes to interest charges instead of reducing your balance, which can negatively impact your credit score. They can also raise your minimum payment since it includes all of the interest you’re charged.
Credit card companies report your balance and activity to the credit bureaus once a month, generally on or shortly after the statement closing date. You can optimize your credit score by paying down your balance before your next closing date.
Why does that help? Because your payment will be made in time to lower the balance before it's reported to the bureaus, helping your credit utilization ratio (how much of your available credit you're using).
Keeping your credit card balances under 30% of your available credit limit is recommended — especially if you’re aiming for a top credit score — so paying down a high balance before your card issuer reports your balance helps your credit score. Many people assume their credit card information gets reported after their payment due date, but that's incorrect.
If that makes you tilt your head in confusion, we get it. We’ll break it down with some examples:
Let's say it’s Dec. 13 and your current credit card balance (in real-time) is $3,000 and your credit card limit is $4,000. That's hovering pretty close to your limit, which you want to avoid. Your upcoming closing date is Dec. 17, and that statement will have a payment due date of Jan. 9.
If you wait until Jan. 7 to pay the full statement balance of $3,000 (reflected on your Dec. 17 credit card statement), then yes, you paid on time. But your credit card company reported your balance on the closing date of Dec. 17. That means your credit report shows a $3,000 balance, and your credit score may take a hit.
If you pay the $3,000 on Dec. 15, then you reduce your credit card balance before your credit card issuer sends your information to the credit bureaus on Dec. 17 (the closing date). That means the balance they’ll report to the bureaus is $0, which is great for your credit score.
The Differences Between the Closing Date and Due Date Matter
Understanding the payment due date vs. closing date on credit cards is important for managing your finances. While the due date is when you need to pay your credit card issuer, the closing date is when your credit card statement closes and your purchases, interest, and balance are calculated. Being aware of these dates can help you make your payments on time, avoid interest, and keep your credit score in good standing.
Here at Arro, we want to help you develop healthy financial habits that build your credit, which means paying on time, finding ways to avoid interest charges, and boosting your benefits with more rewards. Join the waitlist for the Arro Card today.