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A statement balance is the total amount you owe on your credit card at the end of your billing cycle, or closing date. Whether you're a newcomer to the world of credit cards or you've been using plastic responsibly for years, it pays to understand what a statement balance is and how it can affect your credit.
What Is a Statement Balance?
When you receive your credit card statement or check it online, you may see two different balances: your current balance and your statement balance. A statement balance is not the same as your current balance, which is what you owe on your credit card at any given moment. Instead, your statement balance shows the amount on your credit card that posted at the end of the most recent billing cycle.
The statement balance includes new purchases made during the billing cycle, plus any interest, fees and prior unpaid balances, and it deducts any credits you've received or payments you've made on your credit card since your last statement.
Your credit card billing cycle is outlined in your cardholder agreement. It is the length of time, usually 28 to 31 days, between your statement closing dates. Here's an example:
- Your current billing cycle is October 15th to November 15th, or 30 days. When your billing cycle begins, your account balance is zero.
- You make a credit card purchase for $300 on October 20th.
- You make another purchase on the card for $60 on November 21st.
- For the October 15th to November 15th billing cycle, your statement balance is $300. The $60 charge will be part of your next billing cycle because it occurred after your November 15th closing date. (Unless a payment is made, your current balance will show $360.)
Credit Card Statement Balance vs. Current Balance
When you pay your credit card bill, especially if you do so online, it's easy to get confused about the two different credit card balances: statement balance and current balance. But there are differences. Knowing which is which can help you avoid an unfavorable effect on your credit score.
- A statement balance is the total due after adding up all payments and purchases (credits and debits) you've made on your credit card during that billing cycle.
- It's generated by your credit card company on the last day—closing date—of your billing cycle.
- Any amount of your statement balance that you don't pay will carry over to the next month and accrue interest.
- To avoid interest charges, you must pay the statement balance in full each month by the due date on your bill.
- A current balance shows what you owe on your credit card on any given day.
- It updates when purchases and payments are made and as such often displays a different amount from your statement balance.
- Once a purchase, payment or transaction posts to your account, you may see it reflected in your current balance.
Why You Should Pay Your Statement Balance in Full
You should aim to pay your statement balance in full every billing cycle so you avoid accruing interest on balances that carry over to the next cycle. Carrying a balance not only causes you to incur potentially costly interest charges, but it can lead you to fall into debt.
Unpaid balances also affect your credit utilization ratio, which is how much credit you're currently using divided by the total amount of credit you have available. A high credit utilization rate can hurt your credit score. Generally, a credit utilization ratio of less than 30% is recommended, and 10% or lower is even better. If you only make partial payments, you'll wind up with a higher credit utilization rate than if you paid your statement balance in full.
For example, if a balance of $3,000 is reported to the credit bureaus and your credit limit is $5,000, your utilization ratio is 60%. That's considered a very high credit utilization ratio, which can negatively impact your credit score. If you only pay $1,000 toward your balance, your utilization will still be 40%, and that'll go up in the next billing cycle if you continue to make purchases and only pay some of your balance. But if you pay your statement balance in full, you can keep your credit utilization ratio low.
One way to ensure your credit card bill is paid on time every billing cycle is by setting up automatic bill pay. You can set up autopay for the statement balance, the minimum payment or another amount you decide on. Just make sure if you do set up autopay, you have enough money in your checking account to cover the payment so you don't overdraw your account.
The Bottom Line
Your statement balance helps you track the total amount you owe on your credit card at the end of your billing cycle. It can also show just how much you'll have to pay by the due date to avoid paying interest charges and late fees.
Making at least the minimum payment due or, better yet, paying off your balances in full can help boost your credit score. If you're not sure how using your credit card affects your credit score, get your free Experian credit score to find out.