Finance Charges on Credit Cards

What exactly is a finance charge? The finance charge on a credit card is the amount of money that you are paying to your crdedit card company to borrow their money. Credit Card Finance charges usually are decided upon by on how much money you have borrowed on that credit card and what your Annual percentage rate is. It is most common for credit card companies to use one of many methods to calculate the outstanding balance on your card. The method each bank uses can make a big difference in the finance charge you’ll pay. Your outstanding balance may be calculated in some of these ways: 1.) Excluding or including new purchases in the balance 2.) Over one credit billing cycle or two credit billing cycles 3.) Using the adjusted balance/ average daily balance/ or the previous balance 4.) The average daily balance method excluding new purchases/ The adjusted balance method/ The previous balance method. Also, depending on the amount of money that you owe on each credit card and the timing of your credit card purchases and card payments, you’ll usually have a lower finance charge with one-cycle billing. Steer clear of credit cards that charge you a finance charge based on two billing cycles. What is the Minimum finance charge? Some credit cards have a minimum finance charge. These charges usually applies only when you carry over a balance from one billing cycle to the next. So if you can pay off the amount owed before your next billing cycle begins… this is best to avoid paying a finance charge. This also helps you to not fall into the buy now and pay later trap… where you keep borrowing and borrowing and not paying anything off!

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