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As you skim through your credit card statement or check your credit card account online, you'll see a lot of different terms. Two that confuse many people are current balance and statement balance. The difference between a current balance and statement balance is that the current balance is the total amount you owe on the credit card as of today, while the statement balance reflects only the charges and payments made during the most recent billing cycle. Both the current balance and the statement balance affect your credit score.
What Is a Statement Balance?
Each credit card has a billing cycle, which is typically about 30 days. (You can find details about your billing cycle in your cardholder agreement.) The statement balance represents an overview of all credits and debits on your credit card account within a specific billing cycle. In addition to any purchases and payments you made during that time period, the statement balance also includes any fees, interest or penalties charged by the credit card company and any credits that have been issued (such as when you return a purchase). The statement balance is generated on the last day of the billing cycle—the closing date.
If you want to avoid being charged interest, you'll need to pay the statement balance in full each month. Otherwise, the part of the statement balance that you don't pay will carry over to the next month and will begin to accrue interest. If you can't pay off the statement balance in full, be sure to at least make the minimum payment so you can avoid late payment fees and their negative effect on your credit score.
What Does Current Balance Mean?
The current balance (also called the credit card balance) reflects the current amount of all charges and payments made to your account up to that day. Just like the statement balance, it includes fees, interest, penalties and credits, as well as any purchases or payments you've made.
If you use your credit card regularly, your current balance will often be different from your statement balance. Why? While your statement balance is a snapshot of what you owed at a particular moment in time, your current balance is constantly changing to show a running tally of what you owe right now.
Suppose your March billing cycle ends March 15. During that billing period, you used your credit card to make $500 in purchases. The billing statement generated on March 15 shows a statement balance of $500, representing those purchases. However, if you make a $100 purchase with the same credit card on March 16 and then check your account online, you'll see that $100 purchase reflected in the current balance with your statement balance remaining the same.
How Do Your Balances Affect Your Credit?
Both your current balance and your statement balance affect your credit score. Each month, typically at the end of the billing cycle, credit card companies report your credit card usage to the three major credit bureaus—Experian, TransUnion and Equifax. The credit bureaus use your balance information as well as the total amount of revolving credit available to you to calculate your credit utilization ratio and determine what percentage of your available credit you are actually using.
To figure out what your credit utilization ratio is, simply divide the current balance on your credit card by the spending limit for that credit card. For instance, if you have a balance of $500 on a card that has a $1,000 credit limit, you're using 50% of your available credit on that card.
Your credit utilization ratio is the second most important factor in your credit score. The lower your credit utilization ratio is, the better its effect on your credit score will be. If you're using too much credit, credit bureaus may take this as a sign that you're in financial trouble. Under the FICO® Score☉ and VantageScore® credit scoring models, a ratio of 30% or higher can negatively affect your credit score.
Paying your statement balance in full each month can help you minimize your credit utilization ratio. However, if you pay the minimum payment on your credit card and let the rest of the statement balance carry over to the next month, your credit utilization ratio will increase. If the ratio goes above 30%, it may start to hurt your credit score.
When Do You Get Charged Interest?
As long as you pay off your statement balance in full by the due date each month, you won't be charged any additional interest. However, if you don't pay the full statement balance, any remaining balance rolls over to your current balance and begins to accrue interest going forward. If you can't pay your statement balance in full to avoid interest charges, you should at least make the minimum payment. This will avoid late fees and the potential damage to your credit score that comes from missing a payment.
A good way to avoid missing payments on your credit cards is to set up automatic bill pay. This gives the credit card issuer permission to withdraw the statement balance from a certain bank account each month. You can set up automatic payments to be made on a date that's convenient for you, such as right after you get paid, to ensure that you always have enough money in your account to cover the credit card bill.
What if you're not sure you can afford to pay your statement balance in full each month? Perhaps your income fluctuates from month to month, so you're never sure what your bank balance will be. In that case, you can also set up automatic payments for just the minimum payment due. This will keep you from missing a payment or making a late payment, both of which can have serious effects on your credit score.
Striking a Balance
Understanding the difference between a credit card's current balance and its statement balance can help you manage your credit cards more effectively, maintain the best possible credit score, and ensure you always pay the correct amount on your credit card bills. Are you wondering how your credit card usage is affecting your credit report? Get a free credit report to find out.