Average daily balance

Average daily balance is the method used by your credit card company to calculate finance charges on your credit card. It is not applied if you pay off your credit card bill at the end of each billing cycle. But if you carry a balance you will be charged a finance charge. An average daily balance is calculated by adding your outstanding balance on each day in the billing period and dividing that total by the number of days in the billing cycle. The average daily balance is then multiplied by a card’s periodic rate to calculate a finance charge.