What is the average balance?
The average balance concerns the average amount of money contained in the account within a given period of time. The number is determined by the amount of money on the account and the time period. The average balance is used for a number of different purposes, especially for calculating the amount of interest from the credit card accumulated in the specified period of time.
Like any other average, the average balance is calculated by adding different particles on the account and distributing this number by a given period. For example, if an individual wanted to calculate the average daily balance for a five -day period, he would add balance on the first day, the second day, the third day, the fourth day and five days. Then you would share five because this is the number of days concerned.
The average balance can be calculated for any period of time. For example, assume that someone had a credit card for which $ 100 (USD) owed the first month, $ 95 for the second, for the third time, the third, $ 75, the fourth, $ 50, the fifth, $ 20, sixth and $ 0 for the rest of the year. Its average balance in the diarrheaRunning of the year would be equal (100+95+85+75+50+20+0+0+0+0+0)/12. This means that the average annual balance on this credit card would be approximately $ 35.42.
credit cards often use the average daily balance to determine the monthly interest rate for assessment. The company adds up the amount that the card holder owes every day for a month. Then this total number distributes the number of days a month to determine the average daily balance.
Interest is then calculated on the basis of an average daily balance. Thus, if the average daily balance of $ 100 were determined, the credit card would multiply this average daily interest rate balance to determine the amount of interest due to that month. This process would then be repeated every month on the basis of the average calculations of the daily balance for the month.
The average daily balance can also be calculated on a two -month basis or annually. SocietyCredit cards also took advantage of a double cycle invoicing name, which means that the interest rate is calculated on the basis of an average daily balance from the previous two months. In the US, however, the laws on fair credit practice ended the billing of the double cycle.