When it comes to your credit card, your statement balance shows you what’s currently due from your previous billing cycle while your current balance shows any charges made after that billing cycle. When looking at your statement balance, the main thing to note is that your statement includes both your payments and expenses for that billing cycle.
Your current balance reflects all of your transactions and current debt — regardless of your statement balance. Your current balance also changes every time a transaction occurs. When managing your statement balance, it’s often best to pay it off in full every month to prevent interest charges and dings on your credit score. This also helps improve your credit health and utilization ratio. When in doubt, chat with a financial advisor to determine what strategy is best for you and your finances.
Which Balance Do You Need to Pay?
If you aren’t sure which balance to pay it’s a good idea to understand your billing cycle and how to manage it. A billing cycle for a credit card is the period of time between billings. This period is typically 30 days and can range from the 1st to the 30th of a month, or the 15th of one month to the 15th of the next. A grace period is the time that you are allowed to pay your statement balance without accruing interest but varies by providers.
Depending on where you are in your billing cycle, your statement balance may vary. If your statement cycle has ended and you’ve made purchases since then, your current balance may be higher than your statement balance. This typically isn’t an issue if you pay your statement balance on time and avoid making only the minimum payment.
One way to manage your credit balance is by using automatic payments — essentially scheduling your payments to go out on a specific day each month. Some of the many benefits include avoiding late fees, improving your credit score (through timely and consistent payments), and improved security features. While automatic payments are generally a good thing, you need to be sure that you always have enough money in your checking account to avoid overdraft and late fees.
When Do You Get Charged Interest?
By paying your monthly statement balance, you won’t be charged interest if you pay the balance in full within its grace period or before the next billing cycle. If you aren’t able to pay your statement balance on time, it will carry over month to month with increasing interest.
When paying your statement, it’s best practice to pay it in full rather than just the minimum to avoid heavy interest fees. By only make the monthly minimum payment, you perpetuate your debt by increasing the total amount paid due to compounding interest.
If you happen to need a cash advance, be aware that they often don’t have grace periods and interest often compounds on the day that you receive the cash advance. Do your best to pay these off as soon as possible as they have incredibly high-interest rates. While cash advances don’t typically affect your credit score, late payments will.
How Your Balances Affect Your Credit
Your statement balance and your current balance are more than a ledger of what’s owed and what’s been spent — it can actually affect your credit score. By not paying your statement balance on time your credit rating gets lowered.
Your credit card issuer sends updates to the three major bureaus every month, with your current statement balance vs. your current balance, which also affects your credit utilization and score.
Because of this, it’s suggested that you keep your statement balance within 30 percent of your credit limit, preferably at $0. If you’re unsure of how your credit card issuer handles reporting to the major credit bureaus, it’s a good idea to check with your provider. By keeping your balance low or at zero gives creditors more trust in you and in turn increase your credit utilization ratio.
With credit cards always be mindful of your current balance and your statement balance, along with when payments are due. Remember that your statement balance is typically the most important in regards to your credit score and interest that’s accrued.
When paying your balance, try to pay in full to avoid interest and dings on your credit score. If you happen to take out a cash advance, be sure to pay that off as soon as possible as interest starts accruing the day you take it out. If you’d like to get an idea of what your credit score looks like feel free to use Turbo’s Free Credit Report.