How Do Credit Card Payments Work?

What Is a Credit Card Balance?

When you get your credit card bill, you'll notice that it lists two different credit card balances:

• Statement balance: The statement balance on your bill shows the total amount you owe at the end of the most recent billing cycle. Your statement balance takes into account purchases, fees, interest, unpaid balances and any payments or credits you've made or redeemed since your previous statement.
• Current balance: The current balance reflects your balance, including purchase charges, fees, interest and unpaid balances, at the time you check it. Think of your current balance as your real-time balance.

You can find this information on your credit card bill or app. Before you pay your bill, review the following details to understand how much you owe.

• The due date: The date by which the issuer has to receive payment.
• The minimum payment: How much you need to pay to keep your account in good standing.
• The new balance (or statement balance): How much you need to pay if you want to avoid paying interest on future purchases.
• The current balance: The amount you must pay if you want to bring your account balance to $0.

The monthly statement you receive in the mail typically only shows your statement balance, but you'll notice your statement and current balances when you view your account statement online, and your statement balance may be higher.

For example, say you spend $300 during a billing cycle, and another $50 after your cycle closes. When you receive your next credit card statement, your statement balance will be $300, but if you log in to your online account, your current balance will be $350 if you haven't made any additional purchases or payments. In this case, your current balance ($350) is higher than your statement balance ($300) because it reflects what you owe at the time, not your balance at the end of your last billing cycle.

How Do Credit Card Payments Work?

While paying your statement balance or current balance delivers the most benefits, you should make at least your minimum payment each month to keep your account in good standing.

Your bill also lists the minimum payment your card issuer will accept to keep the account status as current. Your minimum payment amount may range from 1% to 3% of your outstanding balance, but the way your minimum payment amount is calculated can vary by card issuer.

Credit card issuers may offer you different options for making your bill payments:

• Autopay: Request automatic payments from a linked account each month. You can generally choose the amount, or opt for the statement balance or minimum payment, and choose your payment date.
• Online payments: You can log in to your online account or credit card issuer's app and manually request a payment from a linked account. Online payments make it easy to request a payment at any time, and you can choose the amount to pay.
• In-person payments: You may be able to make a payment at a bank branch or ATM, which can be a fast and secure way to make your payments.
• By phone: Call the bank to make your payment after confirming your credit card account and payment method. The number may direct you to an automated service line.
• Mail or wire a payment: You may be able to mail a personal check, cashier's check or money order, or send a wire for your payment. However, using this option may result in your payment getting lost, stolen or arriving after your due date. If you decide to mail a payment, don't ever mail cash.

Setting up automatic payments may provide you with backup to help ensure you don't overlook a payment due date. Remember, late payments can get reported to the credit bureaus once your payment is at least 30 days late. Even one 30-day-late payment can harm your credit score and remain on your credit report for seven years.

When Should You Pay Off Your Credit Card Balance?

You can avoid paying interest by paying your full statement balance before your payment due date each month. If you do this, and your card has a grace period, you won't pay interest on your new credit card purchases.

However, suppose you carry, or "revolve," a balance into the following billing cycle. In that case, you'll lose your grace period on new purchases, and your balance will start accruing interest charges. Once you carry a revolving balance, paying it off before your payment due date can help you save money, as interest on credit cards generally resets when you reach a zero balance.

Making multiple payments before your due date is another way to lower your balance and interest charges. Additionally, early payments made before your card's statement closing date—the last day of your billing cycle—may lower your credit utilization rate and help your credit score.

How to Avoid Credit Card Late Payment Fees

The Federal Reserve Board sets limits on credit card late payment fees and other penalties. Currently, the limits are $30 for the first late payment and $41 for any subsequent late payments within the next six billing cycles. You can avoid them by making at least the minimum payment due each month.

Understanding when your payment is due is essential for paying your credit card bill on time each month and thwarting late fees. Here are a few tips to help you keep up with your due dates and make your payments on time.

• Set up autopay. Using autopay for at least the minimum monthly payment can help you avoid late payment fees. Keep in mind, though, you'll still need to monitor your account to ensure there's enough money to cover the automatic withdrawal. Otherwise, you could be on the hook for overdraft charges.
• Choose your payment dates. Many card issuers let you choose your bill's due date. Choose a date that's easy to remember and aligns with your finances (the day after you're paid, for instance).
• Sign up for notifications. If your card issuer offers it, you may be able to sign up for email, text and app notifications. You can set up alerts for when your balance goes above a certain point or to let you know your bill is soon due.
• Monitor your spending. It's easier to pay off your credit card bill in full if you limit your spending to purchases you can afford. The practice of treating your credit card like a debit card and spending only what you can afford to pay for immediately can come in handy here.
• Make payments throughout the month. Making early payments can lead to lower utilization rates and help you avoid surprisingly large bills. If you get paid weekly or every other week, you could choose those times to pay down your credit card bill as well.

If you do miss a due date, make your payment as soon as possible. Remember, once your payment is 30 days late, your credit card company may report the delinquency to the credit bureaus, which can severely harm your credit score.

The Bottom Line

Paying your credit card payments in full every month is the best habit you can develop to keep your credit card debt in check. It also helps you avoid interest charges and lowers your credit utilization rate, which may help your credit score.

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