For the interest on a credit card, do they just take your current balance times the APR and divide it by twelve to get your months total interest charges?

If not, how does it work? I'm just curious and I *should* know the answer to this question. Hopefully after this post, I will. ;)

By Ginny~moderator on Friday, August 1, 2008 - 08:45 pm:

It can be complicated. Note: your bill should show not only the annual interest rate, but also the per day interest rate. For example, one of my cards shows an APR of 13.74%, and a "Periodic Rate" (daily rate) of 0.0376%. Some credit card companies will take each day's balance due and multiply it by the daily rate. Others use an "average balance", and may take the average daily balance for the month, but a lot of credit card companies use a two month period. (Example, your end of February bill would include the average daily balance for both January and February. Now, if you charged $1000 in January, paid $800 at the end of January, and didn't charge anything in February, the ordinary person would think that the interest for February would only be on the $200 unpaid balance. But if your CC company uses a 2-month basis, it will use the average daily balance for the 2 month period which, in this example, would be $500 - producing a higher interest charge.) That is one of the things that proposed new rules would stop - the new rule would be that the CC company could not use the averaging method to charge interest on the part of the bill you've already paid off.

If you are wondering how your CC company calculates interest, when you get your next bill call customer service and ask the service rep to walk you through it step by step.