If you plan to pay your monthly bills in full, select a card that has no Annual fee and gives you a good grace period before commencing of the interest. If a situation occurs where you expect to settle your credit card payments over a period of time and do not have enough grace period with your card, it is very important that you understand the method your card issuer use to calculated charges. It is very important for you to know the charges calculating method as it can significantly affect your payment plans. Described below is the balance computation method with its various types:

Balance Computation Method: A mechanism used by the issuer to calculate your finance charges. It is an extremely important factor, especially if the card doesn’t have a suitable grace period as per your requirements, and/or if you expect to pay for purchases over time.

Type of Balance Computation:

• Average Daily Balance: It credits your account from the day payment is received by the issuer.
• Adjusted Balance: It calculates the balance by subtracting payments received during the current billing period from the balance at the end of the previous billing period. It gives you a space to pay a part of the credit until the end of the billing cycle and avoid the interest charges on that amount.
• Previous Balance: This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.
• Two-cycle Balances: Often Credit card issuers use various methods to calculate your balance that make use of your last two month’s account activity. If your issuer uses this approach, find out explicitly which specific two-cycle method is used.