In a nutshell, a credit card balance is the amount of money you owe to a credit card company from month to month. This is an important number to keep track of because if you don’t pay off your balance by the end of the billing cycle, you’ll owe interest. And, as you may know, credit cards usually have a high interest rate, which can lead to credit card debt.
That said, when you go to manage your credit card bill, you might get tripped up on the difference between your statement balance and your current balance. Read on to learn more about what each type of credit card balance is, how you can check yours, and whether carrying a balance affects your credit score.
What Is a Credit Card Balance?
A credit card balance is the amount of money you owe to your credit card company, as well as interest and any fees.
When you look at your credit card bill, you may see two balances posted: your current balance and your statement balance.
• Your statement balance is the amount of money you owe from the previous billing cycle.
• Your current balance, on the other hand, is how much you owe at this moment in time. This amount could be higher or lower than your statement balance, depending on whether you’ve paid your credit card bill, charged more items to your credit card, or requested a credit card chargeback.
But when your billing cycle closes with a balance, what does that mean? It depends on your card issuer. Many card issuers have a grace period between when the credit card billing cycle closes and when payment is due. That means, if you pay your statement balance in full when payment is due, you will not accrue interest on any of the charges billed from the previous cycle.
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How Is a Credit Card Balance Calculated?
What does your credit card balance mean? It’s more than just whatever you’ve purchased during the previous month. A credit balance also consists of:
• Any accrued interest
• Late payment fees
• Foreign transaction fees
• Annual fees
• Cash advances
• Transfer fees
• Any statement credits
• Any payments made to the account
If you carry a balance, you’ll have to pay interest on the balance owed. The only exception is if you have a card with a 0% annual percentage rate, or APR, which is the interest rate charged when you carry a balance on your card. (This 0% might be a promotional or introductory rate, for example.)
But generally, your card will have a grace period, during which interest will not accrue on the balance.
Differences Between My Credit Card Balance and Statement Balance
The meaning of your credit card balance can vary depending on whether you’re discussing your statement balance or current balance.
• Your statement balance is how much you owe at the end of the billing cycle.
• Your current balance is a continuous tally of any credit card activity.
Here are some points to know about this:
• You will have a due date by which you’ll need to pay your statement balance.
• When your statement balance is paid, there may be activity on your balance as you continue to use your credit card throughout the month.
• The charges made after your statement balance is available will show up on your next statement balance.
• These charges, as well as any remaining amount from your statement balance, constitute your current balance.
Here’s the information on this topic in chart form:
| Statement Balance | Current Balance |
|---|---|
| The amount of money you owe at the end of the billing cycle | The amount of money you owe on the card right now |
| Remains the same until the end of the next billing cycle | Updates every time you use your credit card |
| The amount you need to pay off to avoid interest charges | The total amount currently owed on your credit card |
Your Credit Card Balance and How It Affects Your Credit Score
Some people believe that carrying a balance may benefit their credit score, but that’s not true. Credit card companies do like to see credit card usage, but paying your balance in full is what can help your credit score.
One of the largest determinants of your credit score is your credit utilization ratio. This is the amount of money you’ve borrowed across credit cards compared to the amount of credit you have available. If you had a card with a credit card limit of $10,000 and you charged $3,000 on the card, for instance, your credit utilization ratio would be 30%.
In general, the lower your credit utilization ratio, the more helpful it is in building your score. It’s recommended to keep your credit utilization below 30%, though 10% is ideal. By paying off as much of your credit card balance as you can in a statement period, you’ll lower the amount of money you owe, thus decreasing your credit utilization ratio. This can be part of using a credit card responsibly.
How to Check Your Credit Card Balance
There are many ways to check your credit card balance. You can do so online, over the phone, through an app, or simply keep an eye out for monthly statements, which may be mailed to you or securely delivered through email.
Online
An easy way to check your credit card account balance is to go online to your card issuer’s website, where you can set up your online account. You can then log onto this account to check your balance, pay any bills, and otherwise perform any account maintenance.
As with any sensitive information, make sure you keep your user information secure.
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Over the Phone
Your credit card company likely has a number that you can call to learn your balance, often from an automated voice that reads it off to you. It can also be helpful to know the number to your credit card company in case you want to dispute a credit card charge you don’t recognize or have questions about fees or anything else that appears on your statement, or have lost your card.
Through an App
Most credit card companies have an app in which you can check your credit card balance. The app also may offer additional features, such as a breakdown of spending and your most recent credit score.
Through Regular User Notifications
Depending on how you’ve set up your account, you may receive user notifications and statement balance updates through text message, email, or the mail, or a combination of all three.
Should You Carry a Credit Card Balance?
In general, carrying a credit card balance has the potential to hurt your finances and your credit score.
Sometimes, however, carrying a credit card balance can happen. Perhaps you had a big dental bill or had to buy a new refrigerator. Or maybe you used your card to pay for plane tickets for next summer’s vacation.
Here are some ways to potentially minimize the negative effects of carrying a balance if you end up in a situation where you need to do so:
• Look for a card with low APR. The lower the APR, the less interest you’ll pay on purchases. A good APR is one that’s below the current average, though what’s considered competitive can also vary depending on the type of the card and the individual’s credit score and history.
• Pay more than the minimum balance due. Even if you can’t pay the full balance, paying as much as you can above the credit card minimum payment will help keep your credit utilization ratio low. It will also minimize the amount of interest you’ll pay over time.
• Make a budget. Look through your expenses and find ways to pay down the card over a set amount of time. (There are a variety of budgeting methods available; try a couple and see what works best for you.) Some cards may offer the option to pay off certain purchases in installments, at a different interest rate than the overall card.
• Treat your credit card as you would cash. If you don’t have the money right now, don’t whip out your card. Using a debit card instead can help you stay within the bounds of your available funds.
The Takeaway
A credit card can be a powerful tool — but carrying a balance can make it harder to achieve financial goals. Keeping track of your current balance and making a plan to pay off your statement balance in full each month can be helpful. Doing so can allow you to make the most of your credit card and minimize credit card debt, which can be important money moves.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What does a negative balance mean on a credit card?
A negative balance means the card company owes you money. This might occur due to a statement credit, a return, or you overpaying your bill. A negative balance won’t affect your credit score. When you make a charge on your credit card, the negative balance will be used to cover the payment.
Is it good to carry a balance on a credit card?
No. While it is good to use a credit card regularly and pay it off on time as a means of building your credit history, carrying a balance won’t help your credit score. In fact, if you rack up too much of a balance that it increases your credit utilization ratio, it could hurt your credit score.
What happens if you cancel a credit card with a balance?
If you cancel a credit card with a balance, you’ll still be responsible for payments, interest, and card fees. There may be downsides to canceling the card, too. That’s because part of your credit score rests on how long you’ve had open accounts.
Can I transfer my credit card balance to another card?
Yes. This is called a balance transfer. In a balance transfer, you’ll put your current balance on a new credit card. This can save you money on interest if you’re moving your balance to a lower-interest card. However, be aware that there are balance transfer fees involved. Also, a balance transfer may affect your credit utilization ratio.
Can I make partial monthly payments instead of settling the entire balance?
You can. Paying more than the minimum each month can minimize the effect of interest and lower your credit utilization ratio. To avoid interest entirely, however, you’ll want to pay off your statement balance in full each month.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Photo credit: iStock/Roman Novitskii
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