How do creditors figure finance charges?
Some creditors take the amount you owed at the start of the billing cycle and subtract any payments made during that cycle. New purchases aren’t counted. This is called the adjusted balance method. With the previous balance method, creditors simply use the amount owed at the start of the billing cycle to compute the finance charge. Under one of the most common methods, the average daily balance method, creditors add your balances for each day in the billing cycle and then divide that total by the number of days in the cycle. Payments made during the cycle are subtracted to get the daily amounts, and depending on the plan, new purchases may or may not be included. Under another method, the two-cycle average daily balance method, creditors use the average daily balances for two billing cycles to compute your finance charge. Again, payments will be subtracted to get the balances, but new purchases may or may not be included. Be aware that the amount of the finance charge will vary conside
