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Credit card terms can be confusing to navigate for many, so understand what a finance charge is and how it affects you. A finance charge is what allows credit card companies and lenders to make a profit off of you. It's more or less a fee charged for the use of your credit card. Finance charges on credit cards, mortgages and car loans have ranges that depend on a borrower's credit score. A finance charges is the total cost of borrowing, including interest, fees, and any other charges the borrower pays. Knowing the finance charge of your credit card can help you budget better and determine how much money you're really saving with a particular credit card. Most banks calculate a finance charge using one of two methods: one-cycle finance charge including purchases, or one-cycle finance charge not including purchases. The methods require a different means of calculation. The name of the methods your creditors use should be listed somewhere on your monthly statement. You need to identify the method before you proceed to calculate your score. A variety of numbers go into each equation for calculating a finance charge. Before you sit down and being punching numbers into your calculator, make sure you know the following information: The outstanding balance on your credit card. That is, the total amount you owe. The number of days in each billing cycle. Please note, that depending on the method your bank uses you may need to calculate new purchases into your outstanding balance and not just go off of whatever's written on your bill.
Know what a finance charge is. Figure out which method your bank uses. Gather the necessary numbers.