- 1 what is next closing date in credit card
- 2 What the numbers on your credit card really mean
- 3 How Paying a Credit Card and Credit Card Interest Work
- 3.1 Get Approved for the Credit Card – June 1
- 3.2 Statement Closing Date – July 1
- 3.3 Receive Statement (Mail or Online) – July 3
- 3.4 Statement Closing Date – August 1
- 3.5 More About Minimum Payments and How Finance Charges Are Calculated
- 3.5.1 Where is your minimum payment really going?
- 3.5.2 How are finance charges calculated?
- 220.127.116.11 You’ll pay interest on interest you owe
- 18.104.22.168 Calculating Interest: Daily Balance Method
- 22.214.171.124 Calculating Interest: Average Daily Balance Method
- 126.96.36.199 Residual Interest and When You Make Payments
- 188.8.131.52 Calculating Interest: Adjusted Balance Method
- 184.108.40.206 Changes to Your Credit History
- 4 What does 55 days interest-free really mean?
- 4.0.1 What is the definition of "interest-free days"?
- 4.0.2 Other key definitions you need to know
- 4.0.3 Answers to the most commonВ questions about interest-free days
- 4.0.4 American Express Credit Card Offer
- 4.0.5 Compare 55 days interest-free credit cards
- 4.0.6 55 days interest-free period credit card - Video explanation
- 4.0.7 Click here for video transcript
- 4.0.8 What should I be wary of when using a credit card with an interest-free days offer?
- 4.0.9 Making use of interest-free days
- 4.0.10 Diagram: How do interest-free days work?
- 4.0.11 More Frequently Asked Questions about interest-free period credit cards
- 4.0.12 What is the maximum number of interest-free days I can get?
- 4.0.13 Do additional cards also get interest-free days?
- 4.0.14 I canвЂ™t pay my accountвЂ™s closing balance in full this month, but I can in the future. Will I ever get interest-free days again?
what is next closing date in credit card
Using Manual Entries with Credit Cards in QuickBooks
There are two ways to manually input charges in QuickBooks, by detail and by summary. (For automated downloads, refer to our tutorial Automated Entries with Credit Cards in QuickBooks.)
- With the detail method each charge is entered individually into QuickBooks.
- With the summary method, charges are summed for each expense account and entered as a batch number.
The advantage of the detail method is that QuickBooks contains a record of each transaction. The summary method is faster, but for transaction detail, original statements must be consulted. Another drawback of summarized entry is that it negates job costing and reimbursable expense tracking for individual transactions.
In this example, we’ll use the following Credit Card Statement for Robert Jordan, President of XYZ Industries.
If entries are made contemporaneously with charges, you will be ready to reconcile the account as soon as the statement arrives. Most businesses, however, input credit card data after receiving the statement. The following procedures assume that you do not download web-connect (.qso) files from the bank and that you do not record credit card charges
For the moment, we’ll ignore the payments and credits section and input Purchases and Adjustments. First, we’ll enter the Lowe’s Long Beach Charge.
I. Credit Card Entries Using the Detail Method:
A. Entering Charges:
Go the the Banking menu … Enter Credit Card Charge
The Credit Card Purchase/Charge window opens. To enter the charge;
- Select the Credit Card
- Select Purchase/Charge
- Enter the Vendor
- Enter the Date
- Enter the Reference Number
- Enter the Amount
- Select the Account to charge (alternately, choose the Item that was purchased if Items are used)
- Complete the Memo section if desired
- Save and Close to enter the charge.
Repeat this for all the charges.
B. Entering Payments and Credits.
Next, we’ll look at posting Payments and Credits from the sample statement.
An important thing to note is that it is not necessary to post Payments made on the card. This is because they have already been posted—when you made the check originally. This is illustrated in our example by looking at the $750.00 payment appearing on the Credit Card statement Payments section above: Here is the check written and mailed for the
Note that the account used for the check was “Visa 555.” This is the payment that appears on the Credit Card statement.
Credit Card credits from vendors are another matter, unless they are entered contemporaneously with the credit. As with charges, most QuickBooks users wait until statements arrive to enter credits.
To enter the credit to Office Depot that appears above, open the Enter Credit Card Charges window:
Enter information for a credit the same as if you were entering a charge, but be sure that the Refund/Credit option is selected near the top. You’ll also want to verify the account charged if it doesn’t appear by default. This can be done by going to the Credit card register and looking up the original charge.
Remember: Regular credit card payments are not entered with this form.
II. Credit Card Entries Using the Summary Method:
With the summary method, credit card payments are lumped together and entered as a batch in QuickBooks. Using an Excel spreadsheet to total charged by QuickBooks account can be useful when using this method.
From the Credit Card Statement, Summarize the charges by account in Excel:
The totals are the amounts that you will enter into QuickBooks. Open the Enter Credit Cards window, and enter the totals from your Excel worksheet:
To facilitate reconciliation, it is not recommended that you use summary entries for credits/refunds. Also, as cited before, if you want accurate job costing, or track reimbursable expenses, you should use the detail entry method.
III. Reconciling the Account
After completing your data entry, the account is ready for reconciliation. Go to Banking … Reconcile (it may indicate “Reconcile Credit Card.”)
This opens the Reconciliation window:
There are several things to verify and enter before you continue with reconciliation. These are:
- Select the Account you’re reconciling
- Verify the last reconciliation date (this should be the last statement closing date)
- Enter the current statement date that you are reconciling
- Verify the beginning balance. This appears on your current statement
- Enter the ending balance of your current statement
- Enter the finance charges on your current statement (may include both interest and transaction fees)
- Enter the date of the finance charges (generally the same as the statement date)
- Select the account to be charged for finance charges. Here, we use Bank Service Charges
Now you’re ready to continue with reconciliation. Select (9) Continue, to open the Reconcile Credit Card window:
Mark as cleared (by clicking) the charges, payments, and credits that appear on your statement. When the Difference equals zero, the account is reconciled by clicking Reconcile Now.
If you have trouble getting the Difference to equal zero, check the beginning and ending balances on the statement. If those are correct, one of the entries to QuickBooks is likely the source of the problem. Go though each entry (double check your work if you use the Summary method) to discover the discrepancy.
Copyright © 2008 Caltory Management Solutions All Rights Reserved. QuickBooks and QuickBooks images are registered trade styles of Intuit, Inc.
What the numbers on your credit card really mean
Thomas Cooper / Getty Images
The string of digits presented on the front of a credit or debit card is enough to confuse even the smartest of shoppers.
Yet, each number plays a crucial role in identifying the card provider, bank, and account information, as well as providing a security check.
The only organization that can assign numbers to specific networks, such as Visa or MasterCard, and financial institutions, like Bank of America or JP Morgan Chase, is the nonprofit American National Standards Institute, the Pittsburgh Post-Gazette reports.
When swiped, the Post-Gazette explains, a terminal uses the magnetic stripe of the card to first route the transaction through the proper card network, and then to the financial institution that is listed on the card so that the transaction can be authorized.
Every card, no matter the network or bank, must be in agreement with the " Luhn System, " which determines the validity of a credit card. It's a mathematical algorithm where various combinations of numbers must add up to a number ending in 0. If the total of the combinations adds up to anything other than a multiple of 10, the card is invalid.
Generally, the first number or two of a credit or debit signifies the card provider, followed by digits that determine everything from the currency being used, to the bank processing the transaction, to the individual's account number.
But every network operates a little differently - here's the breakdown.
fonalitГ© | Flickr
The third and fourth digit signify the type of card and the currency being used, according to Clearpoint Credit Counseling. The next six digits, five through 11, are the number of the account, while the 12th through 14th digits represent the card number within said account.
The final digit is a check digit, which is a random number used to protect against errors and fraud, Jason Oxman, CEO at the Electronic Transactions Association, told the Post-Gazette.
Gallo Images / Stringer / Getty Images
Visa cards use a very similar formula, although there are a couple of differences.
The first digit assigned to all Visa cards is four, and the second through sixth numbers are connected to the financial institution.
Then, either the seventh through 12th numbers, or the seventh through 15th, are the account number, while that final 13th or 16th digit is the check number.
Touring Club Suisse/Schweiz/Svizzero TCS | Flickr
MasterCards use the number five as the first in their 16-digit sequence. The second and third, second and fourth, or second and fifth then represent the bank number, Clearpoint Credit Solutions explains.
Following the third, fourth, or fifth digit, every number up through 15 is the account number while that final number, 16, is the check digit.
All Discover cards start with the number six and are 16 digits in length, while petroleum cards start with the number seven and airline cards start with the number one.
How Paying a Credit Card and Credit Card Interest Work
This page will walk you through an example scenario of getting, using, and paying a credit card. Along the way, you’ll learn some common credit card terms and how your actions can impact your credit history.
Understanding this page will help you build credit history and avoid late payments. You will also learn about the grace period most credit cards have, which is like a month-long interest-free loan. After the example, you’ll learn more about how credit card interest is calculated.
Some aspects have been simplified so this generally fits most cards, but the specific terms of your card may vary from this example. Make sure you read and understand the terms and conditions of any card before you apply. If you have any questions or feedback on this page get in touch with the Ask button on the top right of any page.
Get Approved for the Credit Card – June 1
- Credit Limit: $1000
- Available Credit: $1000
- APR: 15.99%
- Account Opening Date – The date when you’re approved for the card and the account is opened. You should get the card in the mail within a few days or weeks of being approved, depending on the card or issuer.
- Credit Limit – The size of the “loan” you have available to spend on your card. This is the maximum amount you can charge to the card before you pay anything back to the credit card company.
- Available Credit – The amount of your Credit Limit you have available to use right now. Don’t make the mistake of thinking “available credit” means “store credit,” like if you have a gift card for a store! When you apply for a credit card you agree to pay back anything you legitimately spend on a credit card.
- APR – APR stands for Annual Percentage Rate. It’s the percentage you’ll pay in interest over the course of a year on any credit card debt you don’t pay off during the grace period. For example, if you have $1000 in credit card debt on a card for a year and that card has a 20% APR, you’ll pay around $200 in interest. That’s a simplified example, but we’ll discuss APRs and how interest is calculated later.
The Account Opening Date is reported to credit bureaus as part of this new account. This date can be used in calculating the average age of your accounts in credit scoring models, which generally favor older accounts. Your Credit Limit is reported to the credit bureaus.
Even though you can spend the full amount of your Credit Limit before you pay anything back does not mean you should. The percentage of your Credit Limit you’re using is a major factor in credit scores. Using a higher percentage is generally worse for credit scores, which is why maxing out your credit cards can quickly lower your credit scores. We’ll discuss this more later.
- Credit Limit: $1000
- Current Balance: $600
- Available Credit: $400
- Current Balance – How much you owe the credit card company, based on up-to-date use of the card. This may also be known as your Outstanding Balance.
By making a $600 purchase on your card, your Current Balance increases to $600. Your Available Credit is the amount of your Credit Limit you still have available to spend after subtracting your Current Balance.
$1000 Credit Limit – $600 Current Balance = $400 Available Credit
Since your Credit Limit is $1000, your Available Credit is now $400.
Nothing related to this event is reported to credit bureaus.
Statement Closing Date – July 1
- Current Balance: $600
- Statement Balance: $600
- Statement Closing Date – The last day of the current statement period. This is the cutoff for charges and payments to count toward this statement period.
- Statement Balance – On the Statement Closing Date, your Current Balance, minus any payments made, plus any extra fees charged by the credit card company, becomes your Statement Balance. Your Statement Balance will not change until the next Statement Closing Date.
Your Statement Balance will be reported to the credit bureaus, and this is the balance that will factor into your credit utilization. In this case, you’re using 60% of your available credit ($600 balance / $1000 credit limit). 60% utilization is quite high. To maximize your credit scores, it’s best to use as low a percentage of your available credit as you can, although 1% utilization is technically better than 0%. You can also make a payment before the Statement Closing Date to lower the Statement Balance that’s reported.
Receive Statement (Mail or Online) – July 3
- Current Balance: $600
- Statement Balance: $600
- Minimum Due: $15
- Due Date: August 7
- Next Statement Closing Date: August 10
- Statement – A document you will get in the mail or can view online that provides details about the previous statement period. It includes the Statement Balance, Minimum Due, and Due Date.
- Minimum Due – Minimum amount you must pay your credit card company by the Due Date to keep your account in good standing, even though you really owe the Statement Balance.
- Due Date – The date, usually about 25 days after the Statement Closing Date, when a payment is due. For most cards, the Due Date is the same day of the month every month. Sometimes this is based on when you opened the card, but some issuers allow you to choose a different date on which your bill will be due each month.
- Next Statement Closing Date – The new statement closing date for this current statement period that started after the previous Statement Closing Date on July 1.
The Minimum Due is calculated based on your Statement Balance according to the terms of your card. For this example card, we assume the terms are:
Minimum Due is calculated as 2% of the Statement Balance rounded down to the nearest $1. When the Statement Balance is above $15, the Minimum Due will be no less than $15.
The way credit card minimum payments are structured can be complicated and vary from card to card. The structure of a minimum threshold amount (like $15 or $25) for the Minimum Due that rounds to the nearest dollar or $5 is common. Since 2% of the $600 Statement Balance is $12, but the terms of this card say the minimum will never be less than $15 when the Statement Balance is above $15, the Minimum Due amount in this example is $15.
CAUTION: The Minimum Due is not the credit card company telling you the amount you should actually pay. To avoid credit card debt, you should pay the full Statement Balance. If you only pay the Minimum Due each month:
- you will pay a significant amount of extra money to the credit card company as interest
- paying off your debt will take much longer (possibly decades, or you may never be able to pay it off)
- you may end up with lower credit scores
Credit card companies are not on your side when it comes to the Minimum Due. You may be tempted to only pay the minimum or a slightly higher amount. Credit card companies stand to make the most profit from you as a customer if you only pay the minimum each month.
It may appear that you’re paying 2% of what you owe when you pay the Minimum Due. So, you may think that if you don’t spend any more on the card you will have paid back 24% of what you owe after paying the minimum for a year (12 months x 2% = 24%).
However, during each month you carry a balance you’ll be charged interest on the balance you carry to the next month. Depending on the APR of your card, you may actually accumulate more debt each month when you only pay the Minimum Due. We’ll come back to minimum payments later.
Nothing is reported to credit bureaus as a result of this event (the Statement Balance was already reported on the Statement Closing Date).
- Current Balance: $800
- Statement Balance: $600
Nothing is reported as a result of this event.
- Current Balance: $300
- Statement Balance: $600
Since this statement period has not closed yet, the Current Balance becomes $300 (to reflect your $500 payment) and the Statement Balance remains $600, because that’s what you owed when the Statement for this previous period was generated.
If you don’t pay at least the Minimum Due by the Due Date, your payment may be considered late or missed. If a payment is more than 30 days late, it can have a HUGE negative impact on your credit scores for many years. Issuers will usually wait until a payment is at least 30 days late to report it to credit bureaus. Even if the issuer hasn’t reported the late payment to credit bureaus they may charge you a late payment fee, increase your APR to a penalty rate, or both.
It may look like the issuer is asking you to pay the Minimum Due. With most cards, you will pay interest (lots of extra money) to the credit card company if you pay less than the full Statement Balance you owe. Unlike in this example, you should pay the full Statement Balance by the Due Date to avoid credit card debt and interest payments.
When it comes time to pay your bills, keep in mind that you can easily avoid interest by simply paying off your entire account balance by the due date. This will help save you money and it’s good for your credit scores because it helps you keep balances low relative to your credit limits.
At this point nothing is reported to the credit bureaus. If you were to pay less than the Minimum Due by the Due Date, you risk a late payment being reported to the credit bureaus, which can have a big negative impact on your credit scores for many years.
Statement Closing Date – August 1
- Current Balance: $301.67
- Statement Balance: $301.67
- Interest Charged: $1.67
- Minimum Due: $15
- Due Date: September 7
- Interest Charged – Fees charged by the issuer on debt you did not pay during the previous statement period.
The $600 previous Statement Balance – $500 Payments = $100 remaining unpaid Statement Balance, so interest gets charged on that $100. Assuming 20% APR, the Interest Charged is approximately $1.67. This gets added to the $300 Current Balance, so the new Statement Balance is $301.67 and will be reported to the credit bureaus.
The new Minimum Due is $15. Since the terms of this card say that when the Statement Balance is above $15 the the Minimum Due is 2% of Statement Balance with a minimum of $15. 2% of the Statement Balance is $6.03, but since that’s less than $15 and more than $15 is owed, the Minimum Due is $15.
The new Statement Balance will be reported to the credit bureaus. Your issuer may periodically change the Credit Limit of your account. If your Credit Limit changes, your new Credit Limit will also be reported to the credit bureaus. Remember, your Credit Limit and Statement Balance are important factors that impact your revolving credit utilization, a major component of credit scores.
More About Minimum Payments and How Finance Charges Are Calculated
If you don’t use a credit card responsibly by paying the full statement balance each month, it’s easy to accumulate boatloads of interest quickly.
Where is your minimum payment really going?
Here’s an example to show why only making the minimum payment (or close to the minimum payment) can keep you in credit card debt for many years.
Let’s say you have a credit card with an 18% APR, your balance is $10,000, and the terms of the card say the minimum payment is 2%.
Keeping the numbers simple, we can approximate your first month’s interest charge is $150: $10,000 balance x (.18 APR / 12 months) = $150, so now you actually owe $10,150. 2% of that is $203, so your minimum payment is $203.
If you only pay the minimum of $203, most of that ($150, or around 75%) is just covering interest. Even though you’re paying $203, you’re really only paying $53 toward the balance you owe.
Some credit cards have APRs in the neighborhood of 24%. If you repeat this same example using that higher APR, the monthly interest is $200. Since the interest is the same as the minimum payment all of the payment is going to paying interest.
Think about how depressing that would be over the course of a year: you paid the credit card company $2,400 ($200 x 12 months) and you still owe the same amount you did a year ago.
If you were to increase the amount of debt in this same example, more credit card debt would accumulate each month because the minimum payment would not even cover the additional interest being added each month. You would be deeper in debt each month even though you’re paying the minimum.
How are finance charges calculated?
There are several different methods credit card companies use to calculate interest. To know exactly how interest is calculated on your credit card, read your cardmember agreement. There are few major themes you should understand about credit card interest first, then we’ll cover a few of the popular methods used to calculate interest.
You’ll pay interest on interest you owe
With most credit cards, every time you carry a balance from one billing cycle to the next you’ll be charged interest on the amount you carry over.
The interest you’re charged is added to your balance. If you carry any of that balance into the next billing cycle, you’ll be charged interest on the remaining balance, including the interest the credit card company added to your bill last month!
This is called “compounding” — you’re charged interest on the entire amount you owe, including any interest owed, every time interest is calculated. This is why it can feel like credit card debt quickly snowballs into larger and larger amounts.
Even though an APR appears to be an annual interest rate, credit card interest is compounded more frequently, not just at the end of the year. Depending on how your credit card calculates interest, you may owe more money every day you carry a balance, not just every billing cycle.
Calculating Interest: Daily Balance Method
One common method for calculating interest is the daily balance method. Interest can be compounded either daily or monthly, depending on the terms of your card.
With this method, interest is calculated based on your every individual day’s balance.
If it’s compounded monthly, the balance of each day is multiplied by a daily interest rate at the end of the billing cycle and added up to result in your finance charge.
If it’s compounded daily, the interest is calculated and added to the balance each day, and then that balance is used for interest calculation the next day. This results in higher interest payments than when your interest is compounded monthly.
With both of these methods you’re effectively accumulating more interest every day that you carry a balance beyond your credit card’s grace period, and if it’s compounded daily you’re paying more interest on top of any interest you already owed the day before.
Here’s an example of the Daily Balance method with interest that compounds daily:
Since an APR is an annual rate, your credit card issuer will divide that number by 365 (or sometimes 360) to determine a daily interest rate. If your APR is 18%, for example, the daily rate would be 0.0493% (.18/365 = 0.000493).
Let’s say you have a $1,000 balance on your credit card that you carried over from the previous statement period.
On the first day you owe interest, the issuer will multiply your balance ($1,000) by the daily rate (0.0493%) to determine your interest charges ($0.49). Those interest charges are added to your balance, so you now owe $1,000.49.
The next day, they’ll do the same thing: multiply your balance (now $1,000.49) by the daily rate (0.0493%) to determine your interest charges ($0.49). Now you’ll owe $1,000.98.
On the next day, they’ll do the same thing again: multiply your balance (now $1,000.98) by the daily rate (0.0493%) to determine your interest charges ($0.49). Now you’ll owe $1,001.47.
At the end of the 30th day, you’ll owe $1,014.40, so you’re paying a total finance charge of $14.40 for the billing cycle.
Since we only followed this example for a few days, the amount of additional interest owed each day does not appear to change since it’s only increasing by fractions of a cent. However, over time, the amount you owe can snowball, because every day you don’t pay down your balance you are owing more interest on the balance (including interest that compounded on previous days).
Calculating Interest: Average Daily Balance Method
Other credit card issuers use a method called Average Daily Balance for calculating interest instead of the Daily Balance Method. That means they’ll average together your balance every day of the month, then multiply that by the daily rate and the number of days at the end of the billing cycle.
Let’s say you have a $500 balance entering the month, then pay $500 on the 16th day of a 30 day month. For the first 15 days of the month, your balance is $500. For the second half of the month, your balance is $0.
With this method, the balance on each day is added up, then divided by the number of days in the billing cycle:
(Day 1 Balance + Day 2 Balance + Day 3 Balance…Day 28 Balance + Day 29 Balance + Day 30 Balance) / number of days
If you do this math with a $500 balance for the first 15 days and a $0 balance for the last 15 days, you end up with an average daily balance of $250.
To calculate your interest fees for the month, your credit card issuer multiplies the average daily balance by the number of days by that daily rate of 0.0493%. In this example, when we multiply $250 x 30 x 0.0493%, the interest charge ends up being $3.70.
Residual Interest and When You Make Payments
With the Daily Balance and Average Daily Balance methods, you can end up with something called “residual interest.” This happens when you’ve already paid off your entire credit card bill after carrying a balance for a few months, but then you see an interest charge on your next statement.
This is exactly what’s being illustrated in the previous example: Even though the balance was $0 at the end of the statement period, there was still a finance charge. This finance charge on your next statement after paying off a card is the residual interest. It’s the interest that accumulated on those days in the first half of the month when you were still carrying a balance, before you paid it off.
When interest is calculated with the Average Daily Balance method or Daily Balance method, the day you choose to make a payment during your billing cycle matters. Ignoring additional purchases, if you make a payment earlier in your billing cycle, you’ll end up paying less in interest than if you make a payment later in the billing cycle. This is because your balance will be lower for more days of the cycle.
Looking at the same example as above, let’s move the payment to a different day and see how the interest charge changes.
If there’s a $500 balance entering a 30-day billing cycle, then you pay $500 on the 9th day, the balance is $500 for 9 days, then $0 for 21 days. This results in an average daily balance of $150, so your finance charge is only $2.22 instead of $3.70: $150 x 30 x 0.0493% = $2.22
In the same situation, let’s say you pay on the 21st day instead. The balance is $500 for 21 days, then $0 for 9 days. This results in an average daily balance of $350, so our finance charge is $5.18 instead of $3.70: $350 x 30 x 0.0493% = $5.18
Although the numbers aren’t very big in this example, it illustrates how you could end up paying a lot more in interest when you have high balances and you pay off debt later in a billing cycle.
Calculating Interest: Adjusted Balance Method
This method is much simpler to calculate, and can result in lower interest than the previous methods discussed, but it’s rarely used by credit card issuers.
With this method, you start with the balance at the beginning of your billing cycle, then subtract any payments you made during the billing cycle. New purchases are not added.
The resulting amount is multiplied by a periodic interest rate based on the APR and the number of days of the billing cycle to calculate the finance charge.
For example, let’s say the balance left over from your previous statement cycle was $1000, and some time during the month (it doesn’t matter when) you made a $500 payment. Now, there’s $500 left. Assuming the same 18% APR we’ve been using, the interest rate for a 30 day billing cycle is 1.5%: 0.18/12 = 0.015
$500 x 1.5% = $7.50, so your interest charge is $7.50, regardless of when you make a payment, as long as you made $500 in total payments throughout the month.
There are a few ways your APR can change. Based on these examples, you can now see how even a slight increase in APR could instantly start costing you more money if you’re carrying a balance.
First, almost all credit cards have variable APRs. These APRs are tied to the Prime Rate. The Prime Rate is 3 percentage points higher than the federal funds rate, which is a rate set and changed by the Federal Open Market Committee, an organization within the Federal Reserve system.
The Federal Open Market Committee meets periodically throughout the year to decide whether they should change the rate or keep it the same. If they decide to increase it by 0.25%, for example, the APRs on credit cards with variable APRs will go up by 0.25%. If you’re carrying big balances on credit cards, you’ll see your interest changes go up slightly.
Unless you’re on the FOMC, fed rate changes are out of your control. Instead, focus on paying your credit cards off in full each month so you can avoid carrying a balance and the interest that goes along with that.
Changes to Your Credit History
The APRs of your credit cards are often set based on your credit history. Generally, the better your credit history is the lower your APRs will be. If your creditworthiness changes, your credit card issuer may change the rate.
If you start making late payments or go over your credit limit, for example, your credit card issuer may raise your APR. There is often a Penalty APR that is much higher than the regular APR, and can be triggered based on specific actions according to the terms of your card.
Credit card issuers will periodically check your credit history. Even if you have not missed a payment on a specific card, that issuer may see that you’re missing payments on other cards and choose to increase your APR going forward.
Luckily, you’ve just finished reading this guide, so you know how credit card interest works and how you can avoid it completely with most cards by paying your statement balance in full. If you found it helpful, please share it with someone else!
If you have any questions about anything discussed on this page, contact us and ask any time.
What does 55 days interest-free really mean?
Credit cards with interest-free days give you a period of time in your billing cycle when you can make purchases without being charged interest. To make use of this interest-free period, you usually have to pay your credit card balance in full by the due date on your statement.
Use this guide to find answers to the most common questions about interest-free days, compare credit cards with up to 55 days interest-free and learn about the key factors to be aware of when using an interest-free card.
What is the definition of "interest-free days"?
This term refers to a period of time in your billing cycle when you can make purchases without being charged interest on them. Interest-free days begin on the first day of your statement period and end on the payment due date.
For example, if you made a purchase on day 1 of a statement period, you could have 55 days to pay it off before interest is applied to the balance. A purchase made on the second day of that statement period would get 54 days interest-free, and a purchase made on day 30 would give you 25 days to pay it off before interest is charged.
Other key definitions you need to know
Before we go further into explaining this credit card feature, make sure you know what these terms mean:
- Interest-free days.
- Statement issue date/ billing cycle.В This is the date on which the bank issues your monthly credit card statement.
- Payment due date.В The date by which you must pay the balance by to avoid late charges/ fees.
- Purchase rate.В The interest rate charged on purchases.
Answers to the most commonВ questions about interest-free days
What does 55 interest-free days mean?
This means that you get 55 days interest-free on your purchases from the start of your billing cycle when you pay the balance in full by the due date on your statement. You get 55 days interest-free on the first day of that billing cycle, 54 on the second day, and so on.
How do I receive interest-free days?В
To be eligible to receive interest-free days you mustВ repay your account's outstanding balanceВ in full by the due date on your statement. Usually, you'll need to pay the full balance for the statement prior to the start of that billing cycle as well as the statement issued at the end of it.
Why does it always say "up to 55 days"?
This is because the amount of interest-free days available varies depending on what day of your billing cycle you make the purchase. While you would get 55 days interest-free on purchases made on the first day of the billing cycle, you'd get 54 on the second day and only 1 day interest-free if you made a purchase the day before your statement was issued for that billing period. So "up to" is used to refer to the maximum amount of days you can get interest-free in your billing period.
Is a credit card with interest-free days suitable for me?В
If you pay off your credit card balance in full by the due date each month, a card will interest-free days will allow you to make purchases without paying interest. This could be ideal if you use a credit card to earn rewards or for short-term cash-flow such as spending between monthly paydays.
But if you think you might not be able to pay the accountвЂ™s closing balance in full each month,В you may like to considerВ low interest rate credit cardsВ andВ 0% purchase offer credit cards.
American Express EssentialВ® Credit Card
Eligibility criteria, terms and conditions, fees and charges apply
American Express Credit Card Offer
With an American Express Essential Credit Card, you can receive $50 credit to your account when you meet the minimum spend requirement. Plus, enjoy a long-term balance transfer offer and up to 55 days interest-free without paying an annual fee for the life of the card.
- $0 p.a. annual fee.
- 14.99% p.a. on purchases
- 0.00% p.a. for 12 months with 1% BT fee on balance transfers
- Up to 55 days interest free
- Minimum income requirement of $40,000 p.a.
Compare 55 days interest-free credit cards
55 days interest-free period credit card - Video explanation
Click here for video transcript
Hi, IвЂ™m Fred Schebesta. IвЂ™m here to explain to you what does up to 55 days interest-free actually means on your c redit card. The first thing is, I want to talk about 55 days. Now, 55 days here, thereвЂ™s actually a little line that goes before that and it says вЂup to 55 days interest-free.вЂ™ Now when it says up to, what that mean is, is that itвЂ™s up to potentially the date that your statement arrives.
Now IвЂ™ve got a bit of a diagram that I want to explain it to you in some concepts. Now the first thing is, youвЂ™re not going to get interest-free days if you have a balance. If you have a balance, you just canвЂ™t get interest-free days, it doesnвЂ™t work that way.
The other thing is that, some cards offer potentially 44 days interest-free or some have actually no interest-free days, so itвЂ™s worth checking your card and comparing. When it comes down to it, this core concept of, вЂwhen is your payment dueвЂ™. When your payment is due, this is when you have interest-free days up to. So I want to take you through an example here. Now, what IвЂ™ve drawn out here is a diagram where we have month one, month two and month three. And letвЂ™s just say that you get your statement on the 30th of the month. So weвЂ™ve just said here that we have three different statement dates. letвЂ™s pretend, on the first day of the month, on potentially on this seventh day of the month, you make a purchase. On that day, you will have 23 days interest-free, and letвЂ™s say you have a 55 days interest-free card, you will get another 25 days interest-free. So in total, this purchase on the seventh will actually give you 48 days interest-free. This here is your actual payment due date, and that is when you must clear your balance to keep getting interest-free days.
LetвЂ™s just say for example, you were to make a purchase on the very last day of the month, say on the 30th here, obviously itвЂ™s the last day of the month, you would only get the 25 days interest-free. So you can see itвЂ™s all about when is your payment due date and when is your statement date.
Now the next one is a little bit of a more intense concept - I just want to take you through this. Say you were to make a purchase, here, on the 8th day of the month. Now that purchase there, would not be due on your payment due date, but instead you will get the interest-free days, so the 22 days here, and the 25 days here, on the payment due date. On the 8th, you will get 47 days interest-free. So itвЂ™s all about when is your statement, when do you make a purchase and when is your payment due date. Remember, you must clear your balance on your payment due date, otherwise these purchases here will not get interest-free days. So, itвЂ™s important to compare if you have interest-free days, and you can do that at https://www.finder.com.au, and I hope thatвЂ™s helped you out with your 55 days interest-free.
What should I be wary of when using a credit card with an interest-free days offer?
Using a credit card with interest-free days on purchases can be good if you know exactly what youвЂ™re doing. Here are some of aspects you should consider:
- Making minimum monthly payments. If youвЂ™re planning to make no more than minimum monthly payments towards your credit card, know that you wonвЂ™t get any interest-free days at all.
- Eligible purchases. Interest-free days are only available for "eligible purchases" made on your card. While this usually includes everyday spending at the supermarket, petrol station, restaurants and so on, exclusions typically apply for cash advance transactions, government payments and some bill payments. Check with your credit card provider for details on what is considered an "eligible purchase" for your card.
- Dates vary. DonвЂ™t expect all your credit cards to come with similar billing cycle dates and dues dates. These dates can vary from one card to the next, even when issued by the same card issuer.
- Balance transfers. Usually, if you have a debt on your credit card from a balance transfer, you won't be eligible for interest-free days on new purchases. If you want to transfer a balance and make purchases without interest, you could also consider a card with an introductory rate of 0% for purchases and balance transfers.
Making use of interest-free days
LetвЂ™s assume you have a credit card that offers 55 interest-free days and its billing cycle begins on the 1st of each month and ends on the 30th. Given the 55 interest-free days, the due date on your credit card statement would be the 25th of next month. So if you were making purchases in June, here's how it would look:
- 1st June. First day of the statement
- 30th June. Last day of the statement
- 25th July. Due date of your payment for June
In this case, the 55 interest-free days begin on 1st June and end on the 25th July when your payment is due. So here's how your interest-free period would work as you make purchases throughout the month:
- You make a $200 purchase on 1st June. You donвЂ™t have to pay any interest towards this purchase until 25th July, which gives you 55 interest-free days.
- You make a $100 purchase on 20th June. This is the 20th day of your billing cycle, so you donвЂ™t have to pay any interest towards the purchase until 25th July. This means you get 35 interest-free days.
- You make a $150 purchase on 30th June. This is the last day of your billing cycle but the purchase won't attract any interest until 25th July, giving you an interest-free period of 25 days.
When you're statement is issued for June, you'll owe $450. So as long as you pay this in full by the 25th July, you won't be charged interest on your purchases and can continue to enjoy interest-free days for the next billing cycle.
Diagram: How do interest-free days work?
Interest-free days can be tricky to visualise, so we've drawn up a handy diagram you can use to see how it works. As well as showing the interest-free period (in green), we also show when purchases are made, when the statement is issued and what happens if you pay less than the full amount for a billing cycle (the middle one in this case).
Credit cards that come with 55 interest-free days give you the ability to make purchases and not pay any interest towards them as long as you make timely repayments. Such cards can come with a number of other features as well, so itвЂ™s important that you choose a card as per your requirement. Bear in mind that just about every credit card issuer provides cards with interest-free days on purchases, so it is in your most interest to compare as many as possible before making a decision.
More Frequently Asked Questions about interest-free period credit cards
What is the maximum number of interest-free days I can get?
With Australian credit cards that offer interest-free days, the maximum interest-free days you can take advantage of usually vary in between 44 and 55, depending on the card you use. There are also some cards that offer up to 62 days interest-free and some that have extended interest-free finance options with specific retail partners.
Do additional cards also get interest-free days?
Additional cards linked to your primary card follow the same billing cycle as the primary card and offer just as many interest-free days on purchases.
I canвЂ™t pay my accountвЂ™s closing balance in full this month, but I can in the future. Will I ever get interest-free days again?
Once you start paying your accountвЂ™s closing balance in full each month again, you can start making use of interest-free days on purchases.