Credit Card Warnings: Two Cycle Billing
June 13, 2008
One of the ways that some credit card companies squeeze every possible cent of interest out of you is two-cycle billing.
The way this works is the interest is calculated based on two billing cycles instead of the more common single cycle.
If you don’t pay off your balance in full by the due date, the interest on those purchases gets back-dated to the original purchase date.
The end result is that you effectively lose the grace period between when you purchase something and when your credit card bill is due.
Most credit card companies use what’s known as the average daily balance method (single cycle) to calculate interest. They calculate the average daily balance on your account by adding each day’s balance and then dividing the total by the number of days in the billing cycle.
If your credit card company uses the two-cycle method, you could be paying even more interest than you think.
If you’re not sure how your credit card interest is calculated, you should check the cardmember agreement that you signed when you originally applied for the card.
If you don’t have a copy on file, most credit card companies have a copy on their website.
You can also call their customer service line and ask how the interest is calculated, specifically if it gets backdated to the original purchase date if you don’t pay the balance in full every month.
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