Credit Cards

What Is a Credit Card Balance?

A credit card balance is the amount of money you owe to your credit card issuer for purchases you've made with your credit card. With most credit cards, you can log into your account online or call the issuer to check what your current balance is at any given time.

Every purchase, balance transfer, and cash advance you make contributes to your credit card balance, along with any fees and interest charges you might incur. Sometimes it can take up to several days for your credit card balance to update and reflect new charges, as purchases don't always post to your account right away.

Your credit card balance can be a positive number if you have made charges and haven't paid them off yet, zero if the balance has been paid off in full, or negative if your payments have exceeded your charges or there has been a refund issued to your account.

What Is a Statement Balance?

A statement balance is the total amount shown on your monthly credit card bill at the end of a billing cycle—and it's what you need to pay off in order to avoid any interest charges. While a credit card balance tells you how much money you owe at any given time, your card issuer offers you a statement balance once a month. That statement balance can be different from your current credit card balance.

When your card's billing cycle closes, your issuer will calculate all the charges, fees, finance charges and payments incurred during that period, and tell you what your card's statement balance is. It will also tell you the minimum payment due and a due date.

You have a grace period, typically somewhere between 21 and 30 days, to pay the statement balance in full without being charged any interest on your purchases. If you only make the minimum payment due, however, the rest of the balance could be subject to finance charges.

Does It Matter What My Credit Card Balance Is?

Your goal should be to pay your statement balance in full each month. That is the best way to avoid paying more than the actual cost of your purchases and going into credit card debt. Paying all your bills on time is the single-most important factor to improving (or maintaining) your credit scores.

However, even if you pay off your statement balance each month, it is also important to be aware of what your monthly balance is and make sure it is not too high. That's because a high credit card balance relative to the amount of credit you have available to you can actually hurt your credit scores.

Most credit scoring models look at your credit utilization ratio in calculating your scores. If that ratio, which is the amount of your overall monthly credit card balances compared with the amount of your overall credit limit, is too high, your credit scores can drop. Generally, you want to keep your credit utilization ratio under 30%, and for the best scores, under 10%.

To figure out what your current credit utilization ratio is, add up the most recent statement balances from all your credit cards. Then, divide that number into the sum of the credit limits from all your credit cards. Multiply that number by 10 and you have your current utilization ratio. For example, say your statement balances across your cards add up to $2,500, and your credit limits add up to $10,000. Your utilization ratio is 25%.

What If My Credit Card Balance Is High?

If your credit card balance is high, there are several strategies to bring it down and pay off your debt. Start by looking at the statements of all your credit cards to figure out how much you owe.

If your balances exceed what you are able to immediately pay off, figure out which cards carry the highest APR. Make sure you are making the minimum payments on every card, but focus on sending extra money to the card with the highest interest rate first. Once that debt is paid off, move on to the next card.

You may also want to consider a debt consolidation loan, which is a personal loan you use to pay off your credit card debt. Shop around at multiple lenders for the best rates, pay close attention to the loan period and be aware of loan origination fees and prepayment penalties. The goal for a consolidation loan should be to find an interest rate that is lower than the one on your credit cards, so you save money in the long run while you pay off the debt.

Another option is to make a balance transfer to a credit card with a lower interest rate. In fact, there are plenty of cards that are offering 0% introductory periods on balance transfers. You will have to pay a fee—usually 3% to 5% of the balance transfer amount—but if you can pay off the balance during the introductory period, you will likely save even despite the transfer fee.