If you don’t pay off your credit card balance within the provided grace period, then the credit card company will levy a convenience fee, instead of offering you extra time. This convenience fee is called finance charge or an interest fee that you have to pay on the money you owe to the credit card issuer.
It can be avoided by clearing the dues i.e. credit card balance before the grace period expires.
How are the Finance Charges Calculated?
You receive your credit card bill every month i.e. 24-29 days based on your billing cycle. When the last date of the billing cycle arrives, then finance charges are added to your balance. This way, the credit card company keeps a track of all the financial activity that happens on your account, so as to arrive at the correct figure for the finance charge.
Following are the situations when you are charged with a finance charge:
- You have made purchases not covered under a zero percent promotion.
- You have a due balance at the start of the billing cycle.
- The transaction is not covered under a grace period, normally cash advances.
In case, you have disputed any transaction in writing, then finance charges won’t be levied on the same until the dispute investigation is complete.
How can Finance Charge be lowered?
The finance charge is calculated based on interest rate and credit card balance, so if any of them are high then the finance charge is also high. So, if you clear the dues in time or before the final date of grace period arrives then you are avoiding them incomplete.
To conclude, the finance charge shall be avoided incomplete if you want to construct a good credit score.
Read More: Why Credit Cards come with an Expiry Date?