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How do credit cards work?

Old 12-28-21, 12:17 PM
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How do credit cards work?

I just got off the phone with CitiBank, very frustrated because they were not able to explain to my satisfaction what's going on. Maybe some foosters can explain it better for me?

We were late on our October bill (life happens), so we were not surprised to see a late fee and interest in our November bill. October bill was paid late, received by them 11/24. The November bill said due 12/21/21, so we made sure to pay that on time, they received it (electronically) 12/20/21. So we were quite surprised to see interest accrued on our December statement!

The closest I got to an explanation is, they continued accruing interest because they couldn't know if for our next bill we were going to make a minimum payment or full payment. But when I asked (twice!), if we had paid both Oct/Nov bills together on 11/24, whether that would have prevented interest, she said No.

Then there's the basis for the interest. She kept going on about 'daily average balance' (DAB). But the value they charged interest on is 97.7% as large as the final (last day) balance! I used this website as an example, entered all the charges from our December statement into a spreadsheet, and came up with a DAB of 67% of the final balance, which makes more sense. If the spending was distributed perfectly evenly across the month, I'd expect DAB to be half the final balance. We had a particularly big charge early on, which tilts the DAB larger. DAB being 97.7% of the final would have to mean the near-final balance would have to be there day 1, and a few smaller charges trickling in.

So they promised me (three times!) if we pay our current statement on time by Jan 21, there will be no more interest, and I guess I have no choice but to take them at their word. But it would sure help to understand what's actually going on

Last edited by RubeRad; 12-28-21 at 12:22 PM.
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Old 12-28-21, 03:59 PM
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Credit cards are evil that is all I know.
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Old 12-28-21, 05:48 PM
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This is why my only credit card is American Express.
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Old 12-28-21, 06:44 PM
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I remember a time where AMEX was supposed to be different, no carried balance. In college I got one because they had deals to buy round trip plane tickets for like $99, or $149 if they crossed the mississippi. I got home from the east coast to CA many times because of AMEX. But I'm pretty sure even back then I was able to take a few months paying those tickets off.
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Old 12-28-21, 06:47 PM
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Originally Posted by Hondo Gravel View Post
Credit cards are evil that is all I know.
They sure are if you resort to minimum balance! One of my kids happened to ask me the other day, what's the rate on a credit card, and I told him like 15-20% annual he was shocked! (he's good at math, good enough to know that's highway robbery)

This is the first time in like 5 years (the whole time we had this card, this is a CitiBank Costco card, which replaced the the Amex Costco card) we were late on one bill, not even because we didn't have the money, just it got overlooked. So normally we don't carry a balance. I just can't believe they found a way to 'legally' squeeze an extra month's interest out of us -- and by coincidence, it happens to be the largest monthly bill we've ever had, about 2-3x a median month!
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Old 12-28-21, 07:06 PM
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Can you set it to make automatic payments? I have my personal ones set that way so the balance is always taken from my bank account on the due date and the same for my business one from the company bank account.
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Old 12-28-21, 08:54 PM
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Interest accrues daily. Take the APR and divide by 365. The result is then multiplied daily to whatever the balance is that day that includes interest accrued already plus whatever fees on that balance. It grows exponentially. We think in arithmetic. By the way savings grow the same way once you get a savings or some interest bearing account going. Minimum CC payments will never pay it off on large balances, you have to at least cover interest charges plus minimum payment and hopefully more to stay ahead of the curve. I've actually had interest charges returned because I doubled 2 monthly payments before due dates. Paying ahead of due dates is an old strategy to save on charges as it keeps a balance from "maturing" with interest in the 30 day cycle. I learned this the hard way with a Montgomery Ward card, then an old guy once told me about credit; "you'll never have money renting money" Now I use only one and only if I can pay the balance in 120 days or less that includes the card's interest charges.

Last edited by Greg R; 12-28-21 at 09:07 PM.
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Old 12-28-21, 09:15 PM
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Old 12-28-21, 09:34 PM
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Originally Posted by skijor View Post
The broad side works in a pinch as an ice scraper.
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Old 12-28-21, 09:35 PM
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Originally Posted by Hondo Gravel View Post
Credit cards are evil that is all I know.
If that is all you know about credit cards you probably will be better off not using them.
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Old 12-28-21, 09:56 PM
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Yeah, I had a gas credit card once that I forgot to pay on time and got whacked with a big late fee. Paid it off and cut it up. Now, I just use a single credit card issued by my bank where I have a checking account to pay it automatically. Oh, and it also pays me monthly rewards on purchases.
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I'd like to think i have as much money as brains.
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Old 12-28-21, 10:11 PM
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Originally Posted by I-Like-To-Bike View Post
If that is all you know about credit cards you probably will be better off not using them.
Credit cards are pure evil. My balance is zero they hate me
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Old 12-28-21, 10:13 PM
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Credit is one of those confusing societal "games" that unfortunately one hasn't much choice in playing...


Originally Posted by TejanoTrackie View Post
Yeah, I had a gas credit card once that I forgot to pay on time and got whacked with a big late fee. Paid it off and cut it up. Now, I just use a single credit card issued by my bank where I have a checking account to pay it automatically. Oh, and it also pays me monthly rewards on purchases.
I wish my bank had better rewards than "points" I can redeem for crap I don't need/want. Would far rather have a cash-back card.


Originally Posted by StupidlyBrave View Post
This has been me the past few weeks (but with more swearing).
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Old 12-28-21, 10:23 PM
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Originally Posted by Kat12 View Post
I wish my bank had better rewards than "points" I can redeem for crap I don't need/want. Would far rather have a cash-back card.
Yepper, that is what I have. I get monthy cash deposits in my checking account where I can actually use them.
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I'd like to think i have as much money as brains.
I see the light at the end of the tunnel, but the tunnel keeps getting longer - me
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Old 12-29-21, 06:13 AM
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Originally Posted by RubeRad View Post
I remember a time where AMEX was supposed to be different, no carried balance. In college I got one because they had deals to buy round trip plane tickets for like $99, or $149 if they crossed the mississippi. I got home from the east coast to CA many times because of AMEX. But I'm pretty sure even back then I was able to take a few months paying those tickets off.
AMEX has different "use models," they still have "no carried balance," but also have the usual "pay over time" thing too... You opt for the card you want. You pay annual fees for "no carried balance," so it isn't "free."
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Old 12-29-21, 06:16 AM
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I have an REI Mastercard. You can spend the earned cash in the store or take it as cash.

I always pay it off in full every month.
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Old 12-29-21, 07:08 AM
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Whenever I've had a late fee/interest because of late payment for whatever reason (I pay in full every month) I call customer service, tell them to look at my payment record, and ask for it to be removed while reminding them I get credit card offers every week and don't need them. Every time it has been removed
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Old 12-29-21, 08:12 AM
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Originally Posted by Kat12 View Post
I wish my bank had better rewards than "points" I can redeem for crap I don't need/want. Would far rather have a cash-back card.
You probably are not limited/restricted from getting credit cards from other organizations than your bank.
For example Amazon Visa, Target Red Card, Lowes and Walmart MC all pay 5% cash rewards on purchases from their companies. In addition my credit union issued Visa card returns 4.25% for gas pump purchases and 2.55% for all supermarket purchases. Citibank Double Cash Mastercard returns 2% cash for all expenses from anybody, anywhere including utility and insurance bills; all balances for all these cards are automatically paid in full every month on time from a checking account. No annual fees, no late fees, no interest payments, no checks, no stamps, no worries. All statements are available on line and all transactions can easily be downloaded in spreadsheet format.

However, if a person is the type to be fearful that a check written for his 12 pack of beer might bounce due to his financial condition than the use of credit cards for daily purchases might not be suitable.

Last edited by I-Like-To-Bike; 12-29-21 at 01:00 PM. Reason: typo correction
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Old 12-29-21, 08:43 AM
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Originally Posted by I-Like-To-Bike View Post
You probably are not limited/restricted from getting credit cards from other organizations than your bank.
For example Amazon Visa, Target Red Card, Lowes and Walmart MC all pay 5% cash rewards on purchases from their companies. In addition my credit union issued Visa card returns 4.25% for gas pump purchases and 2.55% for all supermarket purchases. Citibank Visa Double Cash Mastercard returns 2% cash for all expenses from anybody, anywhere including utility and insurance bills; all balances for all these cards are automatically paid in full every month on time from a checking account. No annual fees, no late fees, no interest payments, no checks, no stamps, no worries. All statements are available on line and all transactions can easily be downloaded in spreadsheet format.

However, if a person is the type to be fearful that a check written for his 12 pack of beer might bounce due to his financial condition than the use of credit cards for daily purchases might not be suitable.
I still prefer not to use cash back cards, though it sounds tempting for me, but I'm the type that doesn't like having my purchases being tracked anymore than they already are. All my credit cards are at zero balance, and have been for some time now.
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Old 12-29-21, 10:54 AM
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Originally Posted by Greg R View Post
Interest accrues daily. Take the APR and divide by 365. The result is then multiplied daily to whatever the balance is that day that includes interest accrued already plus whatever fees on that balance. It grows exponentially. We think in arithmetic. By the way savings grow the same way once you get a savings or some interest bearing account going. Minimum CC payments will never pay it off on large balances, you have to at least cover interest charges plus minimum payment and hopefully more to stay ahead of the curve. I've actually had interest charges returned because I doubled 2 monthly payments before due dates. Paying ahead of due dates is an old strategy to save on charges as it keeps a balance from "maturing" with interest in the 30 day cycle. I learned this the hard way with a Montgomery Ward card, then an old guy once told me about credit; "you'll never have money renting money" Now I use only one and only if I can pay the balance in 120 days or less that includes the card's interest charges.
Thx, but that's not what the internets are telling me. That sounds more like how interest accrues in a savings account. The internet says they compute a Daily Average Balance like this, and then apply the interest rate to it. My statement seems to confirm this with a table

Interest charge calculation Days in Billing cycle: 30
---------------------------------------------------------------------
Balance type: Standard Purchases
APR: 15.24%(V)
Balance subject to interest rate: $X (D)
Interest charge: $Y
-----------------------------------------
APRs followed by (V) may vary. Balances followed by (D) are determined by the daily balance method (including current transactions)

Problem is, I can't make a DAB calculation get anywhere near what they did
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Old 12-29-21, 11:13 AM
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Why don't you just ditch your CitiBank Visa card and get something else ? I used to have one and had all kinds of problems, so I just cancelled it and moved on.
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Originally Posted by Dcv View Post
I'd like to think i have as much money as brains.
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Old 12-29-21, 11:41 AM
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One word: Costco
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Old 12-29-21, 12:11 PM
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I think I figured out how they got to their Daily Average Balance that they charged me interest on: by carrying the balance of our ON TIME 12/20 November payment through December. Nefarious

This makes me wonder how can we ever get out of the interest-accruing trap, short of going a whole month with 0 charges/0 balance, or pre-paying to get to a negative balance. But they assured me on the phone (3 times) if we get the 1/21 payment in on time the next statement will have no interest. We paid it now to at least minimize the accural if they're wrong/lying
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Old 12-29-21, 12:32 PM
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Originally Posted by RubeRad View Post
I think I figured out how they got to their Daily Average Balance that they charged me interest on: by carrying the balance of our ON TIME 12/20 November payment through December. Nefarious

This makes me wonder how can we ever get out of the interest-accruing trap, short of going a whole month with 0 charges/0 balance, or pre-paying to get to a negative balance. But they assured me on the phone (3 times) if we get the 1/21 payment in on time the next statement will have no interest. We paid it now to at least minimize the accural if they're wrong/lying
To answer your question - there are a few major points that are almost the same for any rolling credit account.
1. If you pay your ENTIRE BALANCE before the due date, there will be no late charge and no interest; next month's charges will be interest-free until the due date.
2. If you pay your MINIMUM BALANCE before the due date, there will not be a late charge, but interest will start accruing; sometimes from the transaction date, sometimes from the due date going forward.
3. If you don't pay your MINIUM BALANCE before the due date, there will be a late charge and interest will start accruing probably from the transaction date, and from the due date going forward and indefinitely on all future charges probably on ADB until you get the whole thing paid off.

The only way to not have interest, is to pay the complete balance before the due date. I almost always do that, and I have automatic payments set up for the minimum balance so I never get the late fee - but if I ever forget and the auto payment kicks in, I pay off the entire balance ASAP to minimize the interest charge. I use my card for just about everything so I frequently have big bills and the interest charges would be non-trivial.

Daughter had $12k in dental work and I paid it with one charge on the card (after making sure it was within my limit) and I paid my card off on time... the following month they doubled my credit limit to like $28k... they'd probably give me $50k if they thought I would go in debt and pay interest on it.

Originally Posted by RubeRad View Post
But they assured me on the phone (3 times) if we get the 1/21 payment in on time the next statement will have no interest. We paid it now to at least minimize the accrual if they're wrong/lying
I think that's wrong - you have to get the 1/21 ENTIRE BALANCE paid before the due date to have no interest on the February statement... then the new charges should still be interest free until they show up on a statement.

Last edited by DiabloScott; 12-29-21 at 12:38 PM.
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Old 12-29-21, 01:03 PM
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Originally Posted by Hondo Gravel View Post
Credit cards are evil that is all I know.
Same here. All I know is that I hardly ever use them and I pay them off immediately. Feel sorry for all those sorry saps that have $10,000+ debt in cc bills....well kind of feel sorry
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