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.
What is statement balance?
The statement balance shows everything 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 came to $525. On August 5, you buy those shoes we mentioned earlier, which cost $75. With the new $75 shoe purchase, your current balance would be $600, but your statement balance would remain $525 because the new purchase would show up as part of the next statement’s billing cycle.
Each time you use your card, the current balance changes. But the statement balance remains unchanged until the next billing cycle comes around. 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.
Paying statement balance vs. current balance
When you’re staring at your credit card bill, you might wonder whether it’s best to pay the statement balance or the current balance. Experts say you should at least aim for the statement balance.
Paying the statement balance on your account means you won’t be bringing any of your last billing cycle’s balance into the next month, known as “carrying a balance.” You’ll have to pay interest on any balance you carry into the next month, so paying your statement balance in full will help you avoid those extra interest charges.
While any charges made after you receive your monthly statement won’t need to be paid until they show up on your next monthly statement, paying the current balance can put you even further ahead. It’ll also lower your credit utilization, which should help improve your credit score.
Do you get charged interest if you pay the statement balance?
If you pay the statement balance, not the current balance, by the due date you won’t be hit with interest charges. Under the Federal Credit CARD Act of 2009, a credit card issuer must allow at least 21 days between the end of the billing cycle and the due date. Most credit card issuers consider that span of time a grace period. This means you have at least 21 days from when you get your bill to pay the statement balance before interest charges take effect.
Any charges going toward your current balance that were made after the end of your billing cycle (when your statement balance was calculated) will only be due on your next statement’s due date, and will also have their own grace period.
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 pay the minimum due 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 speed up payment of your debt.
As the American Institute of CPAs points out, “Credit card companies make money by charging interest on the balance you carry over to the next month, so they would prefer that you only pay the minimum amount required. However, it’s a best practice to pay more than that amount whenever possible.”
Impacts on 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 higher your credit score might be. A higher credit score can lead to better odds of being approved for credit, better interest rates on credit cards and loans, and higher credit limits. To quickly determine your current ratio, check out Bankrate’s credit utilization ratio calculator.
Experts recommend keeping your credit utilization ratio at no more than 30 percent of your available credit.
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.