Credit Repair Glossary

• Two Cycle Billing

  When you carry a balance on a credit card, the grace period on new purchases is eliminated. When you carry a balance, the interest rate period starts on the day of each new purchase. 

  If your card issuer uses two cycle billing, here’s what happens:  You get charged interest all the way back to the date you first made the purchase—even if it’s the month before. That means interest becomes retroactive, back to the purchase date.

  An average daily balance is determined by adding each day’s balance and then dividing that total by the number of days in a billing cycle. The average daily balance is then multiplied by a card’s monthly periodic rate, which is calculated by dividing the annual percentage rate by 12.

  A card with an annual rate of 18 percent would have a monthly periodic rate of 1.5 percent. If that card had a $500 average daily balance it would yield a monthly finance charge of $7.50.

  With the two-cycle method, the average daily balance is calculated from two billing cycles rather than one and finance charges are typically higher.

  Luckily, a number of credit card reform acts have been proposed to eliminate this costly (and confusing) practice by card issuers.