How do credit card companies determine the balance on which interest is charged?

Over the years, credit card companies have developed several different methods for computing the balance on which credit card finance charges are calculated. Federal law requires creditors to state the Annual Percentage Rate (APR) when referring to interest and the method used to compute the unpaid balance on which interest is charged.

Below is a description of some methods for calculating the unpaid balance on a credit card and how different calculations affect finance charges. These calculations were made by …