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# How Credit Card Finance Charges are Calculated

- Adjusted balance - In this method the balance at the beginning of the billing cycle is adjusted downward for payments made during the cycle, but the balance is not adjusted upward for purchases made during the same cycle. Payment date is irrelevant as long as it’s posted during the cycle. The resulting balance after calculations are completed is multiplied by the periodic interest rate to determine the finance charge for that billing cycle. This is the most favorable method, since it results in the lowest finance charge.
- Average daily balance - The balances in your account during each day of the billing cycle are added together, and the sum is divided by the number of days in the cycle. Payments made during the cycle are subtracted from the amount you owe; new purchases may or may not be included in the calculation, but usually are.
- Two-cycle average daily balance - The balances in your account during each day of the last two billing cycles are added together, with the sum being divided by the number of days in the two cycles. The remaining calculations are similar to the average daily balance.
- Previous balance - The periodic interest rate is applied to the billing cycle beginning balance; no payments or purchases made during the month are included in the calculation.
- Ending balance - The periodic interest rate is applied to the billing cycle ending balance. The timing of payments and new purchases is irrelevant since only the cycle’s closing balance is used in the calculation.

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