What Is the Meaning of "Closing Date" for Credit Cards?

When you don't understand your statement, managing your credit score is impossible.

If you don't know how to read your credit card statement, you could be missing out on vital information that affects how your finances are reported to credit bureaus. You must understand the various terms used on your statement to plan your budget for the month, because when you don't know what things like "closing date" represent, you can't act accordingly. While it may seem inconsequential at first, the closing date for your credit card statement can have a major impact on your credit score.

Definition

The statement closing date for your credit card is the date that the current billing cycle ends. The credit card company calculates the interest you owe based on the amount you owe as of the closing date, and it also reports the amount of money you owe to the credit bureaus. If you make a payment before the closing date, you owe your creditor less money as of the closing date, meaning that when they calculate your interest, it won't be as high.

Credit Score

Planning your budget around the credit card's closing date can have a positive effect on your credit score, and even more importantly, helps you avoid a negative report to the credit bureaus. For example, if you have a credit limit of $500 and have used up $455 of that limit as of the closing date, that number is reported to the credit bureaus -- and it doesn't look good. Even if you pay off the card in one payment, doing it after the closing date means that your high percentage of card utilization was reported. Paying off the card before the closing date, however, means that the amount you are reported to owe is now $0.

Spending Tips

The best time to use your credit card is immediately after the closing date, as this gives you the most time to pay it off before being charged interest. Interest doesn't accrue on your card immediately -- it is calculated on the closing date, so if you pay off your card before that date, you don't owe any interest. For example, if you use your credit card to make a major purchase the day after a closing date, the charge shows up on the next month's bill. Making the payment before the next closing date, then, gives you a window of 30 days or more to pay off that major purchase before it collects interest.

Effective Utilization

Now that you are planning your payments according to the closing date, you need to know just how much to pay off. Of course, if you can pay off your cards in full with each billing cycle, this has the best impact on your credit score. If you are balancing payments on multiple cards, however, distribute payments across the board so that each one ends up below 10 percent. When you only use 10 percent or less of your available credit, you receive favorable reports from the credit bureaus.

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