Previous Balance Method

We’re sure you diligently pay your credit card balance every month. As such, you might not be aware that the credit card company even charges interest. We’re also sure you floss regularly, get your tires rotated on the recommended schedule, and don’t need Facebook to remind you about your mom’s birthday. But, for the rest of us, with flakes in our teeth and one tire balder than the rest, credit card interest is a monthly reality.

Credit cards use different methods to tally the interest. Two credit cards could charge the same nominal rate of 22%, but wind up charging different dollar amounts in interest, even with accounts showing the same purchase and payment history. Differences come up based on how these lenders calculate their charges and what balances they take into account when they do the math.

Which brings us to the previous balance method. This procedure uses your card balance as it stands at the beginning of your billing cycle. Another company may choose the end of billing cycle, after you've made more purchases.

So...say your cycle ends on the 1st of the month. You buy a pair of moon boots and some scented candles on the 5th. Those items won't count when the interest is calculated under the previous balance method. However, they will get included in next month's calculation, if you don't pay down your balance by then.