Revolving charge account is that in which there needs not be full credit paid up. As much as there is a credit limit, when a certain proportion is paid credit will still be extended (Daskaloff, 1999). On the other hand if there is no balance, the card will not be charged any interest on the purchases made in that month.
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Average daily balance method
In this method, interest accrues on a daily basis. To obtain this interest we divide the APR by 365 to get the daily interest rate, we multiple this interest with the average daily balance. The average daily balance for the month is obtained by adding up each month’s balance and the result is done by dividing with the number of days in that month.
Previous balance method
The amount owed at the end of the previous month is the one considered. Any transactions done in the current month are not put into consideration. We first divide the APR with 365 days and then multiply the result with balance owing for October.
Adjusted balance method.
It is the most favourable to the cardholders because it includes any payments made to offset balance and excludes then add purchases done in the current account. All payments made are deducted from the balance. Multiply the result with the daily APR
October Balance – Payments =$400-$200=$200
Conclusion: Better Credit source
Looking back in time, Nancy would have used a charge agreement credit card because the outstanding balance is usually larger. She only promises to pay a specific amount every month then the credit is extended again. Again, it has no interest so long as the amount due every month is paid in full and on time (Daskaloff, 1999).
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