Important note: Despite what the credit card company told me, and despite my own mis-information, this story below apparently does NOT relate to two-cycle billing. Instead, my frustration stems from the way some credit card companies handle their grace periods. Thanks for all of the commenters who pointed out the error. Here’s a follow-up to this situation.
For almost a decade, I refused to use a personal credit card. I knew that I couldn’t control myself, so rather than risk falling further into debt, the only plastic I carried was a debit card.
But as I gained control of my finances, I decided that carrying a credit card could be both convenient and profitable. I signed up a for a Capital One No-Hassle Cash Rewards card that gave me 1% cash back on all of my purchases. And I developed an iron-clad set of rules to make sure I never lost control of my spending again:
- I pay my bill in full every month. I never carry a balance.
- I do not use the credit card to pay for frivolous stuff. No comic books, no videogames, no junk food. If it’s an indulgence, I pay for it with cash.
- If I do not already have the cash for the item I am purchasing, I do not buy it on credit. If I could not pay with cash, I do not pay with plastic. When I first returned to the world of credit, I even had a “buffer account” in Quicken that I used to immediately pull money from my checking account and prepare for the credit card bill. I don’t need that anymore, but I still follow this rule.
By using these three rules, I’ve been able to steer clear of credit problems for the past two years. I pay for whatever I can with my credit card, which earns me 1% cash back. So far, I have accumulated $489.32 in cash rewards. This can all be used for our trip to France next year:
The $25 Typo
But in order for credit cards to be tools of convenience rather than links in the chains of slavery, you must use them wisely and play by the rules. And you can’t make stupid mistakes.
At the beginning of every month, I pay my credit card bill online. I login to the Capital One website and I make a transfer from my credit union account in the full amount of my “new balance”. Because I pay my account in full, I never pay a finance charge.
But when I was doing my finances last month, I couldn’t get my credit card balance to work out right. I entered and re-entered my transactions, and then compared them with the transactions listed on the bank’s website, and things just wouldn’t add up. The bank showed that I owed an additional $12.22. I couldn’t find a receipt for a $12.22 charge.
In the end, I gave up and created a dummy transaction for $12.22. I hated to do it, but it was just a small thing, and I figured I’d find the problem eventually.
Last week, I did this month’s finances. Again the credit card balances didn’t match. This time the bank said I owed $12.42 more than I thought I did. I went over the ledgers repeatedly and couldn’t make things work. Finally I decided to download the actual PDF statements to see if I could spot the problem. I found it immediately. Can you? Here’s my June statement:
Oops. Call me Mr. Butterfingers.
Apparently when I paid my bill in early June, I didn’t type $2622.11 into the payment box. I typed $2522.11. As a result, I carried a $100 balance over to the next month. Worse, I triggered a finance charge on the entire amount. But what about the next month’s statement? Look at this:
At the beginning of July, I paid the full amount the credit card company said I owed them, including the finance charge. (Though I didn’t realize I was paying a finance charge at the time, remember.) But even though I paid the full amount, I was still assessed a finance charge on the next statement. Why? I was baffled.
Hello, Two-Cycle Billing!
After I whined about this on Twitter, several astute readers gave me the same advice I would give anyone else: Call the credit card company and ask them what’s up. Ask them to waive the fee. So I did.
Because I get nervous about this sort of thing (seriously), I wrote out what I wanted to say in advance. That helped a little. Here’s how the conversation went:
J.D.: Hi. I’m confused and hope you can explain something for me. On my bill dated June 27th, I had a balance of $2062.34. I paid the full balance of $2062.34. But on my July 27th bill, still received a $12.42 finance charge. Can you explain this for me?
Capital One: Please hold a moment, sir, while I verify the information. Yes, I see that you paid $2062.34 and now owe $1312.12. If you pay the full $1312.12, you will not receive a finance charge on your next statement. Your finance charge of $12.42 was based on the average daily balance over two billing cycles [blah blah blah]…
J.D.: So this is two-cycle billing?
Capital One: Yes, sir, it is.
J.D.: (cringing, because I hate this sort of thing) Would it be possible to waive this $12.42 finance charge? As you can see, I use the card frequently and always pay my bills on time.
Capital One: No sir, I’m afraid that is not possible.
J.D.: Okaythanksbye.
So now I have first-hand experience with two-cycle billing. There’s a reason it’s called two-cycle billing. You’re charged interest over two billing cycles. The month after you pay off your credit card balance, you still owe a finance charge. You’re only free of finance charges after you’ve paid the balance in full for two consecutive months. (For more info, check out JLP’s article on how two-cycle billing works.)
Lessons Learned
Depending on who you are, I suppose there are a lot of lessons you could take away from this. You might decide credit card companies are evil and that you don’t want to carry credit cards at all. You might decide that it pays to be more assertive when dealing with bank reps on the phone. (I’ll bet Ramit would have managed to get that $12.42 finance charge waived!)
But the lesson I learned is this: I need to be more careful. I need to double-check my statements, and I need to double-check the numbers I’m entering on the computer.
In the end, my carelessness cost me $24.64. That’s not the end of the world, of course, but it is roughly the cost of another comic book compilation. I think I’d rather have the comic books than the finance charge.
Note: As mentioned in the intro, this isn’t actually two-cycle billing, despite what the customer service rep told me. Here’s a follow-up on this situation.
This article is about Basics, Credit Cards, Real-Life
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Yet another reason why I can’t wait to pay off our credit card debt and just use the card to pay for bigger items (someone above mentioned a vacation), paying the balance in full afterward.
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Hi. Isn’t the two-cycle billing just elimination of the grace period once you don’t pay off the entire balance?
Don’t sweat too much over the $25 fee 1. You asked for fee waiver, did not get it, time to move on. Is it worth spending more precious time on it? I hate haggling over stuff unless it involves signficant $ or is very unfair to me 2. You are already ahead with the CC with the cash back feature 3. It was your mistake and so you should be able to take responsibility for it. Some of the comments I see here come from the common mentality of any problem must be blamed on somebody else if at all possible. 4. By accepting consequences of your action, it will help you to remember to be more careful in the future. The electronic world is convenient but fraught with potential problems. Key or click the wrong thing and you pay for your mistake. Using online bill pay, I once sent my mortgage payment to my Discover card by mistake (selected wrong payee from popup screen). So I got to do some spending on my Discover card and I still had come up with extra bucks to make the mortgage payment on time. But now I double check and take more time when paying online, instead of just hurriedly click, click, clicking.
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I vote for “credit cards are evil”. I had never heard of two-cycle billing, but it’s just a way to charge you (essentially) 144% annual interest ($12 charge on $100 balance for one month) because you short-paid your balance by 4%!
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“Isn’t the two-cycle billing just elimination of the grace period once you don’t pay off the entire balance? ”
Yes, this is what I thought too, at least in this case. American Express has a good clear article on various types of grace periods, and one thing they mention is that grace period only applies if your previous balance was 0. So you get charged interest for the previous month because of the balance, and this month because grace period no longer applies. I would call them and ask though why the finance charge is so high. Surely the interest rate is much lower than that?
I prefer to use auto-pay in full – no mistakes guaranteed. Also, why do you need to type in the amount with Capital one? Can’t you just check “full bill amount” or something?
Richie – a) he got charged on average daily balance which was over $1000, not $100 — once you don’t pay in full, grace period no longer applies… Regardless, he should certainly call and ask for the math on this one. As to credit cards been evil — he made over $400 in rewards, so even with this charge he is still well ahead. Will you lend your money to someone you don’t know interest-free for over a month and with rewards on top? As to high interest for those who don’t pay in full, it has to cover the money lost in defaults.
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That’s funny you mention Ramit – I was thinking the exact same thing
you guys are totally different creatures though…you both rock it in your own ways.
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I was surprised to look at these comments and to see everyone discussing how to get the fees refunded and the relative merits of credit.
Yet no one is discussing the real issue – two cycle billing is outrageous! You are paying interest on money you did not borrow.
You let $100 carry over, but they charged $25 in interest. Granted, your average daily balance is a bit higher, but still…you did not borrow nearly enough to warrant that kind of finance charge. The average is artificially high due to the $2000 balance that had already been paid. With any other card you would have paid on the $100 carried over plus any new charges.
Anyway, I’m pretty sure that two cycle billing will be illegal soon, with the recent legislation in the US. If this were my card, I would cancel just for this one reason, regardless of whether or not they offer to refund the finance charge.
Edit: as I was typing this, I see that others have similar comments. thanks =)
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I can’t believe you gave up so easily. As others have said, I would call them back and ask to get the fee waived. If they refuse to remove the charge, threaten to cancel the card.
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Boy there is no cash reward that would make it worthwhile to have to call a credit card company and beg for a finance charge waiver. Or to have their inscrutable, one-sided contracts looming over my head. I honestly think there’s only one good credit card. A cancelled one.
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“J.D.: Okaythanksbye. ”
LOL! I really liked the end of the conversation! That’s the way I speak when I don’t want to talk to the person any more and I want to get off the phone but I cannot hang up. I just didn’t know that’s how it would look if it was typed up!
I have had my fair share of problems with CapitalOne, from uncalled for subscription to credit card protection, to some “unfair” interest charges, to rude customer service; and then there are times when I have had excellent customer service and actually though they were better than JPM Chase and BoA! So, I hear you.
I get the rewards instead of the case, and when I first experienced the “two-cycle billing” [2BC] phenomenon, I spent loads of time with different people. Let me just say, I have lost once, and won once (two different cards). I later told myself that I have received enough gift cards via their rewards program than they will ever get interest from me. That is enough to not sweat interest payments when they accidentally happen. Actually, I just paid off a balance one of the accounts, but I am expecting them to 2BC me! (And) that’s okay
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kitty, I do not fault the credit card companies for trying to make money. But I do fault them for doing it in an underhanded manner. JD was a good* customer and because of their silly rules he was essentially penalized twice for one mistake.
I realize that the short pay caused the interest to be calculated on the FULL average daily balance, but in effect, the only money he borrowed for an extended time was the $100.
* Defining a good customer to a credit card company is probably tricky, because I’m sure a good customer to them is somebody who pays the minimum and even misses payments, so they can rack up late fees and interest. But JD WAS a good customer from the standpoint of risk. He paid his balance in full every month. Every one of his transactions enabled the company to skim 2.5% (or whatever the rate is) off the retailer.
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@ John Corey (#54)
Capital One has reported your credit limit (assuming your card has a limit) for well over a year (at least since June 2008 as it’s clearly on my old credit report).
@ J.D.
I would call Capital One up again, and ask why they claim to have never used double-cycle billing:
“Double-cycle billing is the way SOME OTHER [emphasis added] credit card companies calculate the monthly interest charged on an account. [...] What changes for you? Absolutely nothing. WE’VE NEVER USED DOUBLE-CYCLE BILLING [emphasis added].”
http://www.capitalone.com/financialeducation/protection/credit_card_act.php#payments
I know it isn’t legal fine print, but something is definitely wrong here.
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Well, you did make a careless error, but to double-bill you for interest is just sleazy. I’d probably try to find a credit card lender that wouldn’t gouge me… If you do business with a credit union, you may find they offer a card with more honest terms.
I would never, not in 87 gerjillion years, allow automatic payment of a credit-card bill. Here’s antediluvian for you: I ask them to send me a paper bill, and I pay with a check. This forces me to check each charge carefully against my Quicken records, and writing a check is less prone to typos. The error JD made was One. Single. Keystroke.
A $25 keystroke. That’s outrageous.
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I don’t suggest direct debit as I see a lot of problem’s with this. I just wanted to leave a note…I deal with the collections dept. of a major wireless provide and we deal with crazy situations all the time. If you called back and assertively explained the situation and asked for a refund I am sure they would give it to you. The customers with lots of credit problem’s are the ones who complain the most and the customers who just ask for a fee refund are the nicest ones we get all day and we love to help them
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@ Annie G #85:
Most credit card companies, including Capital One, allow for pre-authorized debit, which means Capital One is debiting your checking account on the due date. Thus, payment is NEVER late because they are responsible for initiating the transaction. I have over half a dozen credit cards and they are all set up with pre-authorized payment. I never pay interest charges or late fees.
I have the pre-authorized payment set up for all my utilities and such, including property tax, so I don’t think I’ve actually had to log into my checking account to set up a payment in years.
Of course, I keep track of all financial transactions with a spreadsheet, so I always know the amount and due date of all payments and can ensure there are sufficient funds in my checking account.
In short, the key is to put the onus on the vendor to debit the payment.
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hey! What’s in your wallet? Not $25, because that’s what you paid for the hassle of a no hassle card.
here’s the real problem: you didn’t know the card had two-cycle billing, which means you didn’t read your cc statement or terms and conditions.
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It actually looks like a case of the phone representative providing you wrong information.
I doubt you actually have double cycle billing. The reason you kept paying finance charges is because grace is waived for anyone whom maintains a balance. Even when you payed the full amount on the bill, by the time the payment reached them, a day had passed and thus you had new finance charges applied, thus you continued to maintan the criteria for no grace period.
I had the same thing happend to me with a Bank of America card. The important thing to remember for the future is to make a payment large enough to bring you to a small negative balance.
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Glad I read this today. I was *this close* to applying for a Cap One card so I could cancel my BofA card and tell BofA to go stick it somewhere dark. BofA deleted my online profile, so the auto-pay I had set up to pay my cc balance in full before the due date was erased. So I got hit with a $39 late fee AND finance charges on the whole month. I got the fee back but they’re not budging on the finance charges… for their mistake. And one of the many other things I hate about the BofA cc is that they don’t offer that radio button to “pay balance in full” – they make me enter an amount every time I set up a payment online. That just sucks because they’re obviously hoping I type in the wrong amount. In fact, when the screen shows the field for me to enter the amount, they don’t even show the balance due, just the minimum payment due. I have to write the full balance due amount down from the screen before that. My other ccs (with Chase) have the radio button, which I always use and truly have come to appreciate, and show the full statement balance on the same screen as the payment options are listed.
The only reason I have the BofA cc at all is because it’s the card offered for the Upromise program. They had been using citibank (which worked really well, and had radio buttons for payment options) but cancelled that and went with BofA. I cringed when I found out but because of a really nasty run-in I had with BofA years ago, but went with the change anyway since our kid’s in college and any help with that is good. But I’m ready to call it quits with BofA regardless of the Upromise connection.
Anyway, if you have the radio button option to pay the balance in full, that’s definitely the way to go
And I guess I will stay away from Capital One also…
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This just happened to me! I couldn’t figure it out but the final balance was only $1.31 so it wasn’t worth my time fighting it. And we have written off credit cards for good so I don’t plan to deal with this again.
But I did have some curse words to say about the evil credit card business ripping me off.
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I had Capital One for a number of years (was my oldest credit card) and they sent me a letter that they were essentially doubling my interest rate. Granted I didn’t keep a balance, but it was the principle of the thing, especially as the new rate seemed excessively high. I called them up, asked them as I had good credit, never paid late, etc to lower it. They said no (their right) so I declined the change and canceled the card. That was in July of that year. The problem was that they refused to close my account! They didn’t cancel it that month, or the following month, and every month I had to call them. Around 3 months into this when I called to remind them again that the account was closed (they would even acknowledge this was in their records) they switched me to a manager to convince me not to cancel the card and offered a lower rate! At that point I was furious with their tactics and stuck to my guns, got a better card with rewards.
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Well you’re still coming out well ahead with your credit card so nothing to really worry about.
Personally, I’m still happy not having any credit cards and I’m in no hurry to get one, rewards or not.
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Please note that Capital One does not use two cycle billing; we never have. Two cycle billing is when a company computes finance charges on the average daily balance of the last 60 days rather than just the last 30 days. What that means is that they will go back two billing periods before the cardholder sent in their payment, and average the daily balance of all 60 days. Capital One does not use two cycle billing. If your closing was today for example, we would stop, go back 30 days, and take the average daily balance of those last 30 days, assess finance charges and then send out your statement. This is one-cycle billing.
Please contact me at ExecutiveCustomerService@capitalone.com if you have additional questions or if I can assist you.
Kathy
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Seems quite complicated JD. I am VERY impressed that Kathy at Capital One responded to your problem. Love the “EXECUTIVEcustomerservice”
Love this. Well done JD.
I think you’ll have your $25 fee reimbursed in your next billing cycle.
Keigu,
Shogun
Slicing Through Money’s Mysteries
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I had something similar happen to me 20+ years ago by Discover. I thought if we paid off the total (after letting it go one month without it being paid in full), that we’d only pay interest once. It wasn’t true. We paid it again at least once or twice more on our purchases for the next couple of months, even though we paid the required in full.
It made me mad back then and I quit using Discover because of it.
Now with on line options, it is different. You would be to pay on line as soon as you use your cc, or prepay the cc and use it like a debit card.
I’d just pay it off to zero immediately and use a different card for the next month or two til the cycles are past.
I have a Capital One card and like it and use it a lot because of their great policies for us, but am wary and try to be extra careful. I usually try to pay off the “current balance” and not just the “balance due”. I suspect most cards are like this. That grace period isn’t grace anymore once you are paying on a balance.
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You know I’m starting to wonder if this is NOT a case of two cycle billing. JD – is it possible that you made charges on your card after the period end date of the first month? If I’m not mistaken any charges made after the period end date can also be charged interest if you do not pay the previous period in full. It seems to me that this is a much more likely scenario than the two cycle billing. Hard to tell without seeing the actual bills.
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http://home3.americanexpress.com/corp/consumerinfo/grace.asp
This explains why you got charged interest – not because of double cycle billing but because YOU LOST YOUR GRACE PERIOD for the month following the month when you failed to pay in full. Posters above mentioned it, but I guess you all failed to read it.
It’s very clear: “A card with a typical grace period
has an average daily balance including new purchases as the balance calculation method. This means you pay interest on all new purchases immediately, unless you have paid your previous month’s bill in full.”
UNLESS YOU HAVE PAID YOUR PREVIOUS MONTH’S BILL IN FULL.
Translation – if you didn’t pay your previous month’s bill in full, grace period no longer applies, and you are charged interest ON ALL NEW PURCHASES until you pay another bill in full. After you do it, your grace period starts to apply again, but you still have interest that accrued on all new purchases you made in the mean time.
This is the way I understand it. Maybe the lady from Capital One will correct me if I am wrong.
But really, you all behave like you have a god-given right to interest-free one month loans. Grace period is a gift, a courtesy. You have to know how it works. If you lose few dollars in interest because you failed to understand how your card’s grace period works AND you failed to pay your balance in full it is your responsibility. Surely, if this only happened once, it means you are probably still ahead with all the rewards and interest that you got in the bank on your money for all the grace periods you did take advantage of.
BTW — the easiest way to avoid these problems is to use auto pay. Becky – no need for all your trouble really as long as you ALWAYS pay full balance. Now, once you missed one month it does make sense to use a different card for the following month or simply pay right away. But as long as you are consistent, there is no need for all the stuff you do.
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Becky @ 123 – I have to agree with what kitty @125 wrote. It is silly to pay off the current balance. You are wasting the leverage advantage a CC gives you. In that case you might just as well pay with cash.
Kitty @ 125 – thanks for quoting & writing what you did, you said it much more clearly than I did!
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Thanks, Kitty (#125), and others who have mentioned the grace period thing. I think you’re absolutely correct that this is what happened. I suspect that the language barrier prevented me from understanding the CSR’s full explanation, and prevented her from parsing my question correctly.
I’ve sent e-mail to the Capital One rep who commented here asking for clarification, but I fully expect her to reply that the issue is with grace periods and how they work. It’s still not intuitive to me, but it’s not two-cycle billing.
I’m going to clean up the post title and add an explanatory paragraph.
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Just wanted to comment here, though it is looking like this is more complicated than my original read. When I first paid off my credit card balance after getting serious about debt about 10 years ago, I had this same experience of a finance charge again the next month, also from Capital One. I called and asked them what it was and they said it was two-cycle billing. They also went on to explain to me how this practice was to my benefit. After asking 3 times for the service rep to re-explain to me how it was to my benefit, I still didn’t get it. I’m a reasonably smart person with a master’s degree. Their logic and explanation didn’t cut it. Figuring I was tired or something I gave up. Then, later when I learned in fact that two-cycle billing was not for my benefit, I canceled the card. My credit-union credit card that also carries rewards and gets paid off every month does not have this issue at all. Happily, I will continue to tout the benefits of credit unions. Loving my new 15-year 4.5% mortgage from them as well. The way I figure it, refinancing that mortgage, while costing me slightly more each month, will result in over $50,000 in savings. Wonderful!
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“Sam is right – stop beating yourself up. Consider the $25.00 the cost of an “education” on two-cycle billing and know that you have learned your lesson well.”
You can probably write it off on your taxes, since you are a PF writer and all.
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