When you’re young, credit cards seem fairly straightforward: the credit card company pays for purchases on your behalf and you pay them back. Then, you start learning more about credit, interest, and other financial ins and outs and you realize that the system is more complicated than simple dollars and cents.
You know that it’s important to understand your interest rate on your credit cards, but another piece of data you might not think about is your statement closing date. Dive into these four key facts to understand what your statement closing date is and why it matters.
About Your Credit Card Statement Closing Date
Your credit card statement closing date is the day when the credit card company closes out the fiscal month on your credit card. Your interest and minimum payment amount are both based on the dollar amount the credit card company sees on that closing date.
Essentially, think of this as the day when they check the status of your account balance. People in a weight loss program have weigh-ins, and credit card holders have statement closing dates.
How Your Statement Closing Date Affects Your Expenses?
If you’re on a budget or keeping an eye on your finances, your statement closing date affects your monthly expenses in concrete ways.
First, credit card companies charge interest based on the balance on your card on that closing date. If your card has a balance of $1,000 and you pay it in full on the day of closing, you pay no interest on it. If you pay it in full on the day after closing, you pay interest on the full $1,000.
Your next minimum payment is also calculated using the balance you had on your closing date. While it’s not wise to make only the minimum payment on a credit card, there may be times when money is tight and it’s your only option. In these cases, that minimum could be significantly higher or lower depending on what your balance is on your closing date.
How Your Statement Closing Date Affects Your Credit
If you’re paying attention to your credit, you may know that one significant factor in your credit score is your credit utilization ratio. This is the percentage of your revolving credit that you’re currently using.
To clarify, “revolving credit” is any type of credit you can use, pay off, and then re-use. For instance, credit cards are revolving credit because you can max them out, pay down the balance, and then re-use the balance that you had paid off. The same is true for lines of credit. This is different from credit products like car loans which you simply receive once and pay off once.
To calculate your credit utilization ratio, credit bureaus total up your credit limits for all your credit cards and other forms of revolving credit. Then, they total up the balances on all those revolving credit products and see what percentage of your available credit is being used. When the credit card companies report your data to the credit bureaus every month, they report your balance as it was on your statement closing date.
So, for calculation’s sake, let’s say you have one credit card with a $1,000 limit and you use it to make a $500 purchase. If you pay it off the day before your closing date, your credit utilization ratio is 0%. If you pay it off the day after your closing date, that ratio is 50%, which can visibly hurt your credit score.
How to Use Your Statement Closing Date Wisely
Now that you understand your statement closing date and how it affects you, how can you put that knowledge to good use?
Start by checking when your closing date is. It should be on the same date every month, although credit card companies will occasionally change that date so check your closing date every so often.
Then, put your monthly closing date on the calendar so you always know when it will be. Finally, if possible, put a recurring monthly reminder on your calendar to make your payment several days before your closing date.
This way, you’ll always have the lowest possible balance when your closing date rolls around. Your wallet and your credit score will thank you.
Getting Informed to Improve Your Credit
Your credit report is such a vital part of your financial stability and your ability to access things you need like housing, utility company accounts, and even jobs. The first step toward improving and protecting that all-important credit score and your overall financial health is to learn about key factors like credit card statement closing dates.
For more helpful information to empower your financial health, explore our blogs and resources.