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Buyer Beware: Credit card two-cycle billing

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#1 pangya88


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Posted 23 October 2005 - 05:42 AM

jordan at bensbargains.net posted the below article:


Buyer Beware: Credit card two-cycle billing

(National) Feb. 23, 2005 - Ira Stoller rarely carries a balance on his credit cards, "I can't stand the idea of renting money."

He fell short one month, "Therefore I was hit with a finance charge." The charge was much more than he expected, "It startled me. I called, I complained, I yelled - to no avail."

Ira's credit card company uses something called two-cycle billing. Gerri Detweiler is the author of the Ultimate Credit Handbook, "Credit card interest is tough to understand no matter what type it is. And, two-cycle is even more confusing."

The bottom line is instead of your interest being calculated on the average daily balance for one month, it's based on your balance over the previous two months. Detweiler says it basically wipes out your grace period, "Certainly for the credit card companies, it adds up to really big bucks."

Let's say you've been paying your bills in full and charged a $1000 computer mid-December, but you could not make a payment when your January statement arrived. Detweiler says come February, "Most issuers, under the average daily balance method, are going to charge you interest for your outstanding balance in January. So, that's $1000 at 18% interest, you'd pay $15 in interest."

But, with two-cycle billing, you'll pay the $15 interest for January and finance charges based on your average daily balance in December. Detweiler says that's an extra $7.50, bringing your interest penalty up to $22.50, "It may seem like a few dollars here and there but, in the end, it can add up to a lot of money."

Linda Sherry is with Consumer Action. The group's most recent survey found two-cycle billing on dozens of cards from big issuers like Bank One, its subsidiary First USA and Discover, "It did surprise us to even find that banks of this magnitude were actually using it."

It doesn't have to be a surprise to you. Experts say two-cycle billing is always spelled out in the fine print of your terms and conditions.

Ira says he's sticking with his card despite the two-cycle billing, because it offers some other perks, "The rebates far outweigh the costs of the finance charges that may happen every so often. I'm still ahead. I win."

How do credit card issuers defend two-cycle billing? Bank One says, "Most of our card portfolio has two-cycle billing." The company goes on to say, "If a card member does not pay off a balance within the grace period, he or she has borrowed money from the bank and the two-cycle billing allows interest to be collected for monies that have been borrowed." The Discover credit card company did not return phone calls.

Reported by Judi Gatson
Posted 10:11pm by BrettWitt

#2 markber


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Posted 23 October 2005 - 07:03 AM

Thanks for posting this article, pangya88! I did not expect that the two-cycle billing is so widespread. May be I should look if any of my cards use the two-cycle billing. I actually paid no attention at all to this issue when I applied for credit cards.


#3 pangya88


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Posted 25 October 2005 - 04:59 AM

prudent1 posted the following at bensbargains.net:

Just to add my 2 cents to Two-Month intrest thing, well its done by almost every other card. If only you had read the fine print properly you will realise all this there rather than having a nasty surprise when you dont pay what you ought to. I am not a fan of card companies but i am amazed by all these dimwits credit users who almost believe the credit extended to them is there own money to play with.

Also, btw you can call the credit card cust. rep and can ask for waiver of late fee and finance charges. Almost all the card have done for me, just that you have to be nice to them for once.