Average Daily Balance

Definition

  • The method used by most credit card companies to calculate your due payment. An average daily balance is determined by adding each day's balance and then dividing that total by the number of days in a billing cycle. The average daily balance is then multiplied by a card's monthly periodic rate, which is calculated by dividing the annual percentage rate by 12.

Synonyms
everyday amount, numerical constant

Acronyms
ADB

Related Terms and Acronyms

  • Balance (bal.) Abbreviation,
    • The amount of money in your account.
  • Balance Sheet (BS, B/S) Acronym,
    • A listing of a business' assets, liabilities and ownership equity as of a specific date.
  • Grace Period Definition,
    • If the credit card user does not carry a balance, the grace period is the interest-free time a lender allows between the transaction date and the billing date. The standard grace period is usually between 20 and 30 days. If there is no grace period, finance charges will accrue the moment a purchase is made with the credit card. People who carry a balance on their credit cards have no grace period.
    • A window of time where a policyholder still has time to pay insurance premiums.
  • Minimum Payment Definition,
    • The minimum amount a cardholder must pay to keep the account from defaulting. Some card issuers set high minimums if they are uncertain of the cardholder's ability to pay. Most card issuers require a minimum payment of three to five percent of the outstanding balance.
  • Penalty Rate Definition,
    • Several percentage points higher than a card's current annual percentage rate, which goes into effect after two late payments. On some cards, a single late payment triggers a penalty rate.
  • Previous Balance Definition,
    • Some credit card issuers base finance charges on the amount owed by the account holder at the end of the previous billing cycle.
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