Once you have a level 0 backup, you can take an incremental backup. The incremental level can be any integer from 0 to 4. Most Oracle DBAs only use 0 to 2. If you take a level 2 incremental backup, it will back up any changes since the most recent level 2, 1 or 0 backup. A level 1 incremental backup will back up only those changes since the most recent level 1 or 0 backup.
The way that most Oracle DBAs use RMAN for incremental backups follows this guideline: take a level 2 incremental backup daily and a level 1 incremental backup weekly. The daily incremental backup will get all changes in the last day. The incremental level 1 backup will get all changes for the last week. Normally, an incremental level 0 is taken once a month. You may change the time periods to suit your specific needs.
Life gets better in Oracle 10g with the Incrementally Updated Backup (IUB). With IUB, you take a level 0 backup. A level 1 backup will modify the contents of the level 0 backup with the changes. This way, your level 0 backup is always up to date.
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