Credit Card allocation of payments

elfrider

Hi all. I'm looking for clarification on how allocation of payments on credits card should work, as my card company haven't quite done it in the way I would have expected, and I may end up paying significant (and unnecessary) interest as a result.


Example (random figures):
At the end of month 1 the card balance breakdown is as follows:

• Purchases (19%): £500
• Balance Transfers (0%): £1000

During Month 2, a purchase of £1000 is made. Two weeks later (still within month 2), a payment of £1000 is made. I would have expected the balances at the end of month 2 to be to same as they were at the end of month 1 (i.e £1000 purchase cancelled out by the £1000 payment), but with me that wasn't the case.
They have used the first £500 of the payment to pay off the outstanding £500 purchases 'portion' from month 1, and the remaining £500 to reduce the balance transfer portion from £1000 to £500. They have then added the £1000 purchase back onto the purchases portion (at the high interest rate), even though the purchase was made a good two weeks before the payment.


So in a nutshell, at the end of month 2,


Expected:

• Purchases (19%): £500 + £1000 - £1000 = £500
• Balance Transfers (0%): £1000

Actual

• Purchases (19%): £500 - £500 + £1000 = £1000
• Balance Transfers (0%): £1000 - £500 = £500

Based on this, if I had waited an extra week or so to pay the £1000 off (within month 3 rather than month 2), it would have allocate the payment correctly and saved a lot of unnecessary interest. This seems is a bit shifty to me - is this standard practice?

[Deleted User]

Most card companies will apply the payments to statemented transactions first, which is what appears to have happened in your case.

molerat

As above. You need to read and fully understand the payment allocation rules of your card. For your information MBNA would have done it as you expected but they are in the minority.

anythingbutordinary

In my experience, most cards will use your payment to satisfy the amount(s) due on your last statement, then any new charges. Hence why if you take money out on your credit card, you need to pay both your last statement plus the amount you took out to avoid interest.