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Deceptive Credit Card Offers, Part 1: Two-Cycle Billing

Although it’s common to recieve mailing from credit card companies offering credit cards with attractive terms, like 0% APR balance transfer offers or offers on small business credit cards [1] they won’t tell you all the terms of the agreement until you actually apply for the card. This is often the case regardless of your “pre-approved” status.

Sometimes, you won’t know what your credit limit is until the company performs a credit check and you’re formally approved. This makes it more difficult to plan those 0% balance transfers that are so popular among the debt-savvy.

According to the Reuters article, one of the things you’ll have to look out for is called “two-cycle billing.” You most likely won’t know about until the company has accepted and approved your application, a long time after the initial marketing materials are bulk-mailed to you.

What is two-cycle billing?

If you carry a balance for one month, you’ll be paying interest for two months, even if you pay off the balance right after the first cycle ends. If that sounds confusing, here’s an example schedule:

* Jan 1: You make a purchase of $100 on a card with no previous balance.
* Jan 10: Your billing cycle ends.
* Jan 13: You receive your statement with a due date of Feb 5.
* Feb 1: You pay the minimum to the credit card, $20.
* Feb 10: Your billing cycle ends with no new purchases but with a balance of $80.
* Feb 13: You receive your statement with a due date of Mar 5, and you owe the $80 balance plus interest on your average daily balance from Dec 11 to Feb 10.
* Mar 1: You pay the full amount due on the credit card, perhaps $100.
* Mar 10: Your billing cycle ends with no new purchases and a balance of $0.
* Mar 13: You receive your statement with a due date of Apr 5, and you owe interest on your average daily balance from Jan 11 to March 10, perhaps $15.
* Apr 1: If you pay your full bill of the accrued interest on time, and don’t make any further charges, your balance will stay $0.

They keep you involved for a long time after your initial purchase of $100 on January 1. The statement containing only the accrued balance often takes people by surprise, as they believe they’ve fulfilled their debt obligation.

The next articles in this series will look at universal default, over-limit fees, and due times.

6 Comments (Open | Close)

6 Comments To "Deceptive Credit Card Offers, Part 1: Two-Cycle Billing"

#1 Comment By Anonymous On June 6, 2006 @ 12:28 pm

Hi Flexo!
Thank you for leaving a comment on my new blog! I look forward to reading more of your thoughts as well.


#2 Comment By Anonymous On June 10, 2006 @ 10:25 am

It is *stuff* like this that makes me really, really angry. I do not have terms like this on my card, but I feel bad for those that will get bit.

Everyone keeps saying how great credit cards are for building credit. That is why I got one while I was still in high school. Looking back it’s just not worth it. What is so wrong with a debit card (works just like a visa these days) and saving for what you want to purchase?

#3 Comment By Anonymous On October 2, 2006 @ 5:22 am

this is really helpful to new people. Thanks a lot to all who is devoiting their time to feed back here and inform other people about their experiences and facts.