what method is used to calculate the monthly finance charge for the first major credit card?

Question

i am having trouble with m y math i understand but not all the way i feel this proganm will helpm me understand

Answer 1

They use the ADB, average daily balance method.

Let me give you an example on how it works.

1. They define a billing cycle usually 30 days.

2. Over that 30 days billing cycle, they compute the average daily balance on the credit card; example:

    . cycle starts January 1 and ends January 30

    . on January 1, balance on credit card is $1200

    . on January 10, new charge of $200 bringing balance to $1400.

    . on January 18, payment of $ 500 bringing balance to $900.

    . no more operation till January 30.

3. How calculate ADB.

   . starting balance is $1200 and last for 9 days thus 1200x9=10800

   . on the 10th, new balance of $1400 lasting for 8 days thus 1400x8=11200

   . on the 18th, new balance of $900 lasting for 13 days thus 900x13=11700

   . I have a total of 10800+11200+11700=33700 to divide by 30 days that gives me an ADB of 33700/30=1123.33

4. Interest rate.

    Let us assume that the APR is 9.5%.  The billing cycle interest rate will be 30/365*9.5%=0.78%

5. Billing cycle charge.

   ADB x interest rate for the cycle = $1,123.33 x 0.78% = $8.77