The APR is a measure of the cost of credit, delineated by a yearly rate. It also must be disclosed before you before you sign on the dotted line. In addition, the bank also must disclose the "periodic rate" - which is merely the rate applied to your outstanding balance to calculate the finance charge for each billing period.


A few credit card programs allow the bank to change your APR when interest rates or other economic indicators - called indexes - change. Due to this, the rate change is linked to the index's performance, these plans are called "variable rate" programs. Rate changes raise or lower the finance charge on your credit card account. If seriously you're considering a variable rate card, the issuer must also provide various information that discloses to you:

• that the rate may change; and
• how the rate is determined - which index is used and what additional amount, the "margin," is added to determine your new rate.

At the latest, you also must receive information, before you become obligated on the account, about any limitations on how much and how often your rate may change.

Balance Computation Method for the Finance Charge.
If your credit card program doesn't offer a free period, or if you expect to pay for purchases over time, it's important to know what method the issuer uses to calculate your finance charge. This can make a big difference in how much of a finance charge you'll pay - even if the APR and your buying patterns remain relatively constant.

Examples of balance computation methods include:

Average Daily Balance
This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the "average daily balance.


Adjusted Balance
This is usually the most advantageous method for card holders. Your balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period. Purchases made during the billing period aren't included. This computation method gives you until the end of the billing cycle to pay at least a portion of your balance to avoid the interest charges on that particular amount. Some creditors exclude prior, unpaid finance charges from the previous balance; check with your bank.


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 which are not included. Some creditors may also exclude unpaid finance charges.


Two-cycle Balances
Credit card issuers may sometimes use various methods to calculate your balance that make use of your last two month's account activity. Rest assured this is probably not in your favor. Read your credit card agreement carefully to find out if your bank is using this approach and, if so, what specific two-cycle method is used. Remember, the way the interest is calculated can add up to hundreds of extra dollars year, If you carry a balance on your credit card.

Here's how some different methods credit card companies utilize to calculate finance charges on a particular account:

	Average Daily Balance (Including new purchases)	Average Daily Balance (Excluding new purchases)
Monthly rate:	1 ½%	1 ½%
APR:	18%	18%
Previous Balance:	$400	$400
New Purchases:	$50 on 18th day	$50 on 18th day
Payments:	$300 on 15th day (new balance = $100)	$300 on 15th day (new balance = $100)
Average Daily Balance:	$270*	$250*
Finance Charge:	$4.05 (1 ½% x $270)	$3.75 (1 ½% x $250)

* To calculate an average daily balance (including new purchases): ($400 x 15 days) + ($100 x 3 days) + ($150 x 12 days)/30 days = $270

** To calculate the average daily balance (excluding new purchases): ($400 x 15 days) + ($100 x 15 days)/30 days = $250

	Your Adjusted Balance	Your Arevious Balance
Monthly rate:	1½%	1 ½%
APR:	18%	18%
Previous Balance:	$400	$400
Payments:	$300	$300
Average Daily Balance:	N/A	N/A
Finance Charge:	$1.50 (1 ½% x $100)	$6.00 (1 ½% x $400)

Some of the following information is courtesy of the U.S.'s government's Federal Trade Commission.



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