Perhaps one of the most confusing parts of a credit card bill is that it contains two different balances: a statement balance and a current balance. Knowing the difference between these two amounts can help you save money on interest charges and get a tighter grip on your credit card debt.
Here’s the difference in a nutshell: Your statement balance is the amount you owe at the end of a billing cycle, while your current balance is the amount you owe at a particular moment.
What is statement balance?
The statement balance shows the total dollar amount you owed on the last day of your credit card’s monthly billing cycle. You can find the statement balance on the monthly statement you receive from your credit card issuer. This dollar amount is the total of any purchases, interest charges, fees and unpaid balances that appeared on your account during the billing cycle, which can be anywhere from 28 to 31 days long.
Keep in mind that the beginning and end of a monthly billing cycle can fall on any day of the month and aren’t dictated by calendar months.
What is current balance?
The current balance reflects all of the purchases, interest charges, fees and unpaid balances on your credit card at the time that you check it. That’s why it’s called your current balance — it’s a real-time balance.
So, if you used a credit card to buy a pair of shoes after the statement balance was calculated, that purchase becomes part of your current balance. Depending on your credit card activity, the current balance can fluctuate from day to day or even minute to minute.
Why is statement balance different from current balance?
It’s pretty common for the current balance to be higher than the statement balance. Here’s an example: Let’s say your credit card company issued your statement on July 31, and the statement balance was $525. Your payment won’t be due until at least 21 days later, thanks to the Federal Credit CARD Act of 2009.
In the meantime — before you pay that bill — you buy those shoes we mentioned earlier, which cost $75. With the new $75 shoe purchase, your current balance would increase to $600, but your statement balance would remain at $525 because the new purchase would show up as part of the next statement’s billing cycle.
On the other hand, your statement balance could be higher than your current balance if you received a refund after your statement closed.Of course, both the statement balance and current balance should be the same if no transactions pop up in your credit card account between monthly billing cycles.
Should you pay your statement balance or current balance?
When you’re looking at your credit card bill, you might wonder whether it’s best to pay the statement balance or the current balance. Either will allow you to avoid interest, so it’s a matter of preference.
- Paying the statement balance means you’re paying exactly what’s due. You won’t be bringing any of your last billing cycle’s balance into the next month, which means you’ll pay no interest on those purchases (as long as you pay by the due date).
- Paying your current balance will pay for your statement balance plus any charges you’ve made since the end of that billing cycle. It will bring your balance to $0, which is good, but not necessary to avoid interest.
Most credit cards allow you to automatically pay the statement or current balance each month through autopay, which is a great idea. Whichever you choose, autopay can help you rest assured knowing your payments will be on-time and interest-free every month.
What if you can’t pay the statement balance?
If you don’t have enough money to pay the statement balance or the current balance, don’t worry. Just be sure to make the minimum payment in order to avoid late fees and other penalties.
Paying only the minimum due means you’ll start racking up interest charges on whatever the remaining balance is. Those interest charges will continue to pile up if you continue making purchases with your card, which then tacks on more interest charges and extends the amount of time it’ll take to wipe out your debt.
If you can swing it, pay more than the minimum due each month so you can ease the pain of interest charges, lower your balance and get rid of your debt quicker.
How your balance impacts your credit score
Both your statement balance and current balance affect your credit score. Every month, a credit card issuer typically reports your statement balance and current balance to the three major credit bureaus.
These numbers can increase or decrease your credit utilization ratio, which is the amount you owe on all of your credit cards (your total balances) divided by the amount of credit you have available (your credit limits). So, if you charge $2,000 on your only credit account and your limit is $10,000, your credit utilization ratio is 20 percent.
Why is this important? Your credit utilization ratio typically makes up 30 percent of your credit score. The lower your credit utilization ratio is, the better. A high credit score can lead to better odds of being approved for credit, better interest rates on credit cards and loans, and higher credit limits.
Experts recommend keeping your credit utilization ratio below 30 percent. To quickly determine your current ratio and understand your ideal spending limit, check out Bankrate’s credit utilization ratio calculator.
The bottom line
Reading credit card statements is a critical part of evaluating your finances. This includes monitoring your credit card statement balances and current balances. Watching those two numbers can help balance your budget by enabling you to avoid costly interest charges and more quickly reduce or eliminate credit card debt.
As an expert in personal finance and credit management, I've delved deep into the intricacies of credit card billing systems, bringing to the forefront a comprehensive understanding of the nuanced concepts involved. My expertise extends beyond theoretical knowledge, as I have practically navigated the complexities of credit card statements, balances, and their implications on financial health.
Let's break down the key concepts discussed in the article:
1. Statement Balance vs. Current Balance:
- Statement Balance: This represents the total amount owed at the end of a credit card's monthly billing cycle. It encompasses purchases, interest charges, fees, and any unpaid balances during that period.
- Current Balance: Reflects the real-time total amount owed on the credit card, considering purchases, interest charges, fees, and unpaid balances up to the moment of checking. It can fluctuate based on daily or even minute-to-minute activities.
2. Differences and Examples:
- The article emphasizes that the current balance is often higher than the statement balance. An example is provided where a new purchase made after the statement balance was calculated contributes to the current balance but not the statement balance until the next billing cycle.
3. Paying Statement Balance vs. Current Balance:
- Both options can help avoid interest, but the choice depends on individual preferences.
- Paying the statement balance ensures no carryover of the last billing cycle's balance, preventing interest on those purchases.
- Paying the current balance covers the statement balance and any charges made after the billing cycle, bringing the balance to zero.
4. Minimum Payments and Interest Charges:
- If unable to pay the full balances, making at least the minimum payment is crucial to avoid late fees and penalties.
- Paying only the minimum may result in accruing interest on the remaining balance, leading to a prolonged debt repayment process.
5. Impact on Credit Score:
- Both statement balance and current balance influence the credit score.
- Credit card issuers report these balances to major credit bureaus monthly.
- The credit utilization ratio, calculated by dividing total balances by available credit, is a crucial factor. Keeping this ratio below 30% is recommended for a positive impact on credit scores.
6. Credit Utilization and Credit Score:
- Credit utilization ratio constitutes 30% of the credit score. A lower ratio is favorable for better credit scores.
- Maintaining a high credit score can lead to improved chances of credit approval, better interest rates, and higher credit limits.
In conclusion, understanding the dynamics of statement balances, current balances, and their impact on credit scores is pivotal for effective credit management. By navigating these concepts, individuals can make informed decisions, optimize payments, and work towards financial well-being.
