Open-end credit can be used again and again, generally until you reach a certain prearranged borrowing limit. Truth in Lending requires that open-end creditors tell you the terms of the credit plan so that you can shop and compare costs. When you re shopping for an open-end plan, the APR is only the periodic rate that you will be charged, figured on a yearly basis. Creditors must tell you when finance charges begin on your account, so you know how much time you have to pay your bill before a finance charge is added. Creditors may give you a 25-day grace period, for example, to pay your purchase balance in full before you must pay a finance charge.
Creditors use a number of different methods to arrive at the balance.
Some creditors, for instance, take the amount you owed at the start of the billing cycle and subtract any payments made during that cycle. New purchases are not counted. This is called the adjusted balance method. With the previous balance method, creditors simply use the amount owed at the start of the billing cycle to compute the finance charge. Under one of the most common methods, the average daily balance method, creditors add your balances for each day in the billing cycle and then divide that total by the number of days in the cycle.