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With most cards, you can avoid paying interest (finance charges) as long as you pay the full statement balance by the due date each month. However, paying more toward the current balance could have a positive impact on your credit scores and help you stay ahead on what you will owe later.
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Credit cards are powerful tools you can use to help build better credit. As you do so, you may be able to qualify for even better credit card offers. These better offers might come with bigger rewards, lower rates, and more attractive signup bonuses.
However, in order to make the most of your credit cards, it helps to understand the terminology used by your credit card issuer. One area that causes a lot of confusion is the difference between your statement balance and your current balance.
Before you can understand the difference between your statement and current balance on a credit card, there’s another component of your credit card account you need to grasp first — the billing cycle.
A card’s billing cycle is a set period of time during which you make purchases and payments. When a billing cycle ends, your next credit card bill (aka statement) is generated.
A card’s billing cycle generally lasts around 30 days. But those 30 days will seldom span the 1st to the 30th of the month. (But wouldn’t that be super easy to track?!) Instead, your billing cycle might look like one of the following:
These dates are just hypothetical examples, but you get the picture.
When you log in online to make a payment on your credit card account, you’ll find several options to choose from. Two of the options available will be to pay your statement balance or your current balance.
Sometimes those two amounts will be different. Other times they may be the same. Yet even if the numbers of these two payment options happen to match on a particular month, these two types of balances don’t represent the same thing.
Read below for some highlights of the key differences between these two balances.
Your statement balance is a total of all charges, minus payments, made to your credit card during your previous billing cycle. This might include any of the following:
So, the amount you owe your credit card issuer at the end of a billing cycle is called your statement balance or “new balance.” It’s also the balance that’s reflected on your credit card statement itself.
Perhaps most importantly, your statement balance is the balance that’s reported to the three credit bureaus each month — Equifax, TransUnion, and Experian. As such, it’s the account balance that’s supposed to show up on your three credit reports for the next 30 days or so.
Want to potentially earn good credit scores and avoid expensive interest rates at the same time? If so, it’s a good idea to always pay the full statement balance on a credit card by (or perhaps even before) the due date.
Your current balance is the total amount you currently owe on your credit card account, whether payment on all of that balance already has a scheduled due date or not. The current balance, also called the outstanding balance, can change daily. It may adjust up or down anytime one the following changes posts to your account:
When you log in to your credit card account online, you can see how much you owe on your card and how much of your credit limit remains available. (Available credit = credit limit – current balance.)
However, your current balance is not reported to the credit bureaus. Credit cards don’t update in real time. As a result, it’s not your current balance but rather your statement balance that appears on your credit reports.
There’s nothing wrong with paying your current balance in full, even if it’s higher than your statement balance, if you want to do so. But you should understand that paying your current balance won’t save you any extra money in interest, unless you’ve previously lost your card’s grace period.
There is a chance that paying your current balance could lower your credit utilization rate though. If it does, the lower utilization might help your credit scores.
Deciding which balance to pay each month on your credit card depends on your goals. Do you want to take advantage of interest-free money as long as possible? Are you interested in maximizing your credit scores? Do you prefer to keep things simple?
Your answers to the questions above will shape which payment option is the best for you.
Unless you have a 0% APR, we typically recommend paying your statement balance in full to avoid interest, and to take advantage of your credit card grace period as long as possible. If you want to maximize your credit scores, you can pay down your current balance before your statement period ends to lower your reported credit utilization.
This post is primarily about statement balance vs. current balance differences. But you’ll actually have four payment options to choose from each month when you log in to make your credit card payment online.
In general, it’s a bad idea to make only the minimum payment on a credit card account. Yes, paying this amount helps you avoid late fees and late payment reporting to the credit bureaus. But you’ll be stuck paying expensive interest charges to your credit card company. Plus, paying only the minimum payment could result in a higher credit utilization rate on your credit reports, and that’s not good for your credit scores.
If you’re in a tight spot financially for a month or two, you might consider making only the minimum payment on a credit card to help alleviate some short-term cash flow problems. But this should only be a short-term solution to a financial emergency. You’ll have to tread carefully and avoid letting this turn into a long-term habit.
An exception here could be if you have a card with a 0% promotional APR. You won’t be charged interest for the duration of the promotional period, giving you a chance to pay off a balance over time, but you’ll need to make at least the minimum payment each month to stay in good standing and keep the 0% rate. Just be sure to pay off the full balance by the end of the 0% period so you’re not charged interest later on.
Typically, you’ll be in great shape if you pay your full statement balance between the date the statement is issued and the due date. This period of time between the end of your billing cycle and your payment due date is known as the grace period on your account.
As mentioned, there’s nothing wrong with paying your current balance on a credit card. Paying your current balance means that you’re paying off all charges made during your last billing cycle plus any new charges made since then.
You don’t have to pay your current balance to avoid interest, though. Paying the statement balance takes care of that issue.
Also, while paying your current balance might lower your utilization ratio a bit the following month, keep in mind that paying the current balance (or the statement balance for that matter) by the due date might not result in a $0 balance on your credit reports.
Whatever your balance is at the time your statement is issued will be reported to the credit bureaus. That balance will appear on your credit reports for approximately the next 30 days.
If you’re aiming for a super-low utilization rate, perhaps because you’re about to apply for a mortgage or other major financing, you might consider paying your current balance (everything currently owed on your credit card account) a day or two before your statement closing date.
Your statement closing date falls at the end of your billing cycle. It’s the date your credit card issuer creates your next statement. So, if you pay your current balance to $0 before the statement closing date, the statement generated for you that month will say that you owe $0. That translates to a 0% credit utilization rate — almost as good as it gets from a credit scoring perspective.
The final option you will have when it comes to payments is “other.” You can specify any amount to pay toward your credit card bill.
Just remember, if you don’t pay at least the minimum payment due, you’ll likely be charged late fees. Your credit card issuer could also report your payment as “late” to the credit bureaus. And, if you pay anything less than the statement balance on your account, you’ll probably be subject to interest charges as well (unless you have a 0% rate).
Credit cards have the ability to make your life easier. They’re convenient. They offer superb fraud protection. You can even earn valuable rewards and cash back on purchases that you need to make anyway. Most of all, a well-managed credit card can help you to build a better credit rating and that can pay off in more ways than you can count.
But when you don’t manage credit cards properly, the results can be disastrous.
Here’s the good news. You have control over how credit cards will impact your life.
Make a habit of paying off at least your statement balance in full every month. Then, you can enjoy your card benefits without the worry of building a pile of debt along the way. In fact, you can even schedule automatic payment drafts from your bank account each month. This could help you avoid interest and be sure you never accidentally miss a due date, but you may want to peek in monthly to be sure your payments are going through.
Statement and current balances are just one aspect of credit cards, and there’s much more to learn. Find more tips and educational resources in the Insider Academy.
Michelle Black is a leading credit expert, author, writer, and speaker with over a decade and a half of experience in the credit industry. She is an expert in credit reporting, credit scoring, financing (mortgages, credit cards, loans), debt eradication, budgeting, saving, and identity theft. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).
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