The 30-Day Billing Cycle
All businesses try to maximize profit. But the financial industries hire people with advanced degrees in finance, business and mathematics, as well as programmers, to ensure that the system is fixed in their favor. I am not saying we should do away with credit. But most of us do not have an advanced finance degree. So when we enter into a contract with a creditor we have much less chance of figuring out their game. It is kind of like playing poker with your cards face up, but not seeing your opponent’s cards. Are you ready to go all in now? But beyond merely having expertise in finance, creditors play tricks to make you late. One favorite is to have your account on a 30 day billing cycle. You may have noticed in your credit report that the reporting agencies report 30 days late, 60 days late, 90 days late, and 120 days late. But have you thought about why that period is used? In part it is convenience. Excepting February, all months have at least 30 days. But there is more to it. Banks use a 360 day financial year. At one time it was because calculations were done by hand or with very simple calculation machines. If all months were assigned 30 days, then 360 days was 12 months. The financial calendar could thus match the actual calendar pretty closely. And the five extra days were simply not included. This made little difference with the very small amounts people borrowed and saved. But a lot has changed. Inflation means that a home no longer costs $300, but will instead cost a thousand times as much. With such large numbers, throwing the extra days out of the calculation reduces profits. And the introduction and adoption of the computer has made complex calculations simple. And this gives banks a big opportunity to cheat you. The 30 day billing cycle is one example. Have you noticed that when you schedule an automatic payment, you cannot select a 30 day payment option? Why? It is the same bank that issues credit cards, so why can’t you select to pay them on the same cycle? because it will cause you to pay late. And when you pay late, they raise you interest rate and charge you fees. If your payment is due on March 1, but it is on a 30 day billing cycle, the next payment will de due on March 31, not April 1. You will then have payments on April 30, May 30, then June 29. By February of the following year, your payment will be on February 24. Your payment drops back. But if you used the automatic payment feature by the end of the year you will be incurring late fees. It will probably take you two or three months before you notice. To add insult to injury, by then the creditor will have raised your interest rate and imposed several months of late charges. And if you call them about it, they will act like it is a favor when they remove one of the charges “as a courtesy”. But you will be very lucky to get the lower interest rate restored.