# How is interest calculated if I carry a balance on my credit card?

We calculate interest charges each billing cycle. To calculate your balance for the purpose of charging interest at the end of each billing cycle, we use a method called “average daily balance (including new purchases).” This method involves a two-step calculation.

First, we calculate the "average daily balance" by doing the following:

We take the beginning balance each day during the monthly billing period, add any new purchases and applicable fees posted that day, and subtract any payments that are applied for that day.  This gives us the daily balance.  We then add up all the daily balances for each day included in the monthly billing cycle, and divide by the total number of days included in the monthly billing cycle.  That gives us the average daily balance.

Next, we divide the applicable annual percentage rate by 365.  This gives us the "daily interest rate".

Finally, we 1) multiply the daily interest rate by the average daily balance, then 2) multiply the result by the number of days in the billing cycle.  This gives us the interest charge.