September 4, 2006 7:24 AM
What Is Two-Cycle Billing?
Bankrate educates us how two-cycle billing works and why it is a money maker for the card issuers.
The two-cycle average daily balance approach to calculating finance charges on credit cards charges interest for one billing cycle based on the average balance over two billing cycles. It’s a way for credit card companies to effectively get rid of the grace period when a cardholder moves from paying off his bill every month to running a balance. If your balance remains fairly stable from month to month, two-cycle billing won’t significantly increase your finance charges.
It’s common for credit card providers using this method to include new purchases in calculating the average daily balance. If that’s the case, it is presented on your cardholder agreement and billing statement as: two-cycle average daily balance (including new purchases).
If you pay off your balance in full each month you’ll keep the grace period on new purchases and won’t feel strongly one way or another about two-cycle billing until the next time you carry a balance.
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