Credit Card Finance Charge (1260)

Most people do not know what method a credit card company uses to determine the finance charge on their bills. There are three methods of determining the finance charge: previous balance, average daily balance, and adjusted balance.

The previous balance method is the most expensive because the charge is calculated on the previous balance unless you pay the bill in full.

Credit card companies use the second method when they base the finance charge on the average daily balance. (The total of each day’s balance, divided by the number of days in the billing cycle.) This method is the most equitable and is used widely.

The third method, adjusted balance, is the least expensive because the finance charge is calculated on the balance after you make your payment.

Of course, if you pay the bill in full each month, you will not pay a finance charge. As a skillful consumer, shop for your credit cards just as you do for any other type of loan.

For more information on this subject, Please visit the College of Agricultural Sciences Publications Web site.

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