Here comes the big question, Why Is there a Finance Charges on my Credit Card? One of the benefits of getting a credit card is that one may not have to pay off the full balance immediately. But there’s a cost to delaying your payment still at convenience. If you delay in your balance payment, your credit card issuer will charge you a fee for the convenience of taking your time rather than paying your balance right away. Such a fee is a Finance charge and is simply an interest fee charge on the money you’ve borrowed. Finance charges apply to any balance beyond the grace period. It can be generally put out if you make your entire balance payment before the grace period ends.
How Do I Assess Finance Charges?
As a rule, the Credit card issuer sends cardholders bill for their charges every 24 – 29 days based on each person billing cycle. On the last day of a billing cycle, credit card issuers take into account all the activity on every cardholder account such as transactions, payments, fees, and credits to calculate their finance charges. Credit card finance charges are added to each person’s account and billed to everyone.
Additionally, you are charged a Finance charge whenever a transaction is not made under a 0 percent interest promotion. If you had a balance at the beginning of the billing cycle and the transaction doesn’t receive a grace period, such as cash advances. Also, any billing errors that you’ve disputed in writing won’t be assessed a Finance Charge while your credit card issuer investigates your dispute.
How To Calculate Finance Charges
Generally, finance charges are calculated each billing cycle based on your APR that is, (interest rate) and credit card balance. So your Finance charges vary from month to month.
In fact, Issuers have various patterns of calculating Finance charges based on how they calculate your balance. They may calculate your finance charge using your daily balance, an average of your daily balance, the balance at the beginning or the end of the month or your balance after payments have applied. It is now an illegal activity for a credit card issuers to charge a new Finance charge on a balance you paid off in a previous billing cycle.
Check your credit card statement or terms and conditions to confirm, if your card issuers uses the average daily balance method to calculate your finance charge. You can use these instructions to estimate your finance charge.
However, you need to have an idea of what your average card balance will be. Your credit card agreement may also include a minimum Finance charge that you are charged most often when subject to a Finance charge. For example, your credit card terms may include a $ 1.00 minimum Finance charge. If your calculated Finance charges for a specific billing cycle is only $. 65, you’ll be charged a $1.00 Finance charge for that month.
How To Pay Off Your Finance Charges
Paying off your minimum credit card payment is usually sufficient to cover your finance charge plus a small percentage of the balance. However, if you pay for the minimum payment only, this will reduce your balance by only a small amount each month. Since so much of the payment goes towards paying interest. You will have to Increase your minimum payment substantially if you want to pay off your balance faster. Inversely, for some reason, your minimum payment is less than your finance charge. This will result in a bigger, not smaller balance.
Can I Lower My Credit Card Finance Charge Amount?
Your finance charge is calculated base on your interest rate and credit card balance. You’ll pay higher Finance charges when these amounts are high. You can also reduce the amount of your interest by paying off balance promptly. Requesting a lower interest rate or by moving your balance to a credit card with a lower interest rate. Pay off your monthly balance in full to avoid finance charges.
Where To Find Your Finance Charge
The finance charge is placed in different positions on your monthly credit card billing statement. One the first page of your billing statement, you’ll see an account summary listing your balance, payments, credits, purchases, and the finance charge. It may also be referred to as an “interest charge.”. In the transaction breakout made on your account billing cycle, you’ll see a line item for your finance charge and the assessment date.
In a different section, the breaks down of your interest charges, you’ll see a break down of your finance charges by the type of balance you’re carrying. For instance, if you have a purchase balance and a transfer balance, you’ll see the details of the finance charges for each. This is because these balances most times have several grace periods and interest rates.