How are Finance Charges Calculated?

Credit Card companies calculate Finance Charges in different ways. Your account statement describes the method that applies to you. However, all Credit Card companies use the following general methods to calculate your balance for Finance Charges: Average Daily Balance: If you don't pay in full, the card company adds the amount you still owe from your previous statement to all new purchases and cash advances. This amount is then divided by the number of days in the billing period. This is listed on your statement each month you use the card. Adjusted Balance: In this case, payments you make during the Billing Period are subtracted from the balance owed at the beginning of the Billing Period. This means your balance is kept lower and you pay less in Finance Charges. Previous Balance: In this case the monthly Finance Charge is applied to your beginning balance for the Billing Period. Purchases and payments during the month that follow aren’t included. Ending Balance: In this case, the card company may use your ending balance for the Billing Period. If so, any purchases and payments during the Billing Period are included. There are other costs of credit. You should be aware of other fees and expenses associated with using credit cards. The more you know about these costs, the better you can control your expenses. For example: Annual fee: The yearly cost of owning a credit card is called an Annual Fee. Not all credit cards have an annual fee. Often this fee is posted to your balance when you open the account. Thereafter it is added each year on the anniversary of your account opening. Late fees: When you fail to pay the minimum monthly payment by its due date, you will be charged a Late Fee. To avoid Late Fees, card companies suggest that your payment be mailed at least 5 to 7 days before it is due. Online payments through your checking account is becoming increasingly popular. This option is generally much faster than traditional mail and usually posts to your account within 24 hours. Other fees: These include an over-the-limit fee if your balance exceeds your credit limit. You may also be charged fees for returned checks, cash advance checks or stop-payment requests. Fees such as late and over-the-limit fees are avoidable. They may also harm your credit history, which could make it harder for you to get credit in the future.