What is a statement balance?

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When you enter the world of credit cards, banking and personal finance, there are a lot of new terms and questions that you may run into. One of these new terms may be a statement balance. Chances are that you’re here wondering, “What does a statement balance mean?” While the term may be simple and straightforward, it’s critical to understand to stay on top of your finances, protect your credit and maintain your financial health.

What is a statement balance?

Your statement balance is the amount of new money you owe on a credit card as of the last statement. Each month, your credit card company keeps track of all of the charges that you’ve made. Once a month, your credit card company “settles up” and sends you a total of what you’ve been charged for the prior month.

Statement balance vs. current balance

Understanding the difference between statement balance and current balance is the first spot where it can be a bit confusing. Your current balance is the up-to-the-minute amount that you owe. This balance is updated in real-time as opposed to the statement balance that is updated once a month at the end of your billing period.

For example, let’s say that you go out today and spend $100 on your credit card. If your monthly statement period ends this Friday, your current balance today will show you owe $100 (real-time), but your statement balance will show that you owe $0 (updated once a month). On Friday, though, your bank will “settle up” and will update your statement balance to reflect all outstanding charges. So, at that point, your statement balance will be updated to $100.

Should I pay my statement balance or current balance?

Deciding if you need to pay your statement balance or your current balance depends on a few factors. Generally, the bank isn’t requiring or requesting you to pay back what you owe until it’s updated in your statement balance. You still owe the money, but the bank hasn’t formally requested repayment.

What this means is that you technically don’t have to start paying your balance off until it hits your statement. You won’t incur any interest charges on your current balance. However, there may be implications on your credit score for carrying a current balance between statement periods.

Additionally, some credit card companies separate statement balance from total balance. In these situations, your statement balance is your new charges accrued during the last month (statement period). Your total balance is what you owe from last month, as well as any other previous statement periods.

For example, let’s say that your statement periods run in line with each calendar month of the year. In May, you accrue $50 in charges. At the end of May, your statement balance is $50, and your total balance is also $50. Let’s say that you don’t make any payments, and in June, you spend another $150 on your credit card.

At the end of June, your statement balance is only $150, but your total balance due is $200, which includes the other $50 that you still owe. For clarity, this example omits any interest charges or late payment fees you’d incur on the $50 from May.

What if I can’t pay my statement balance?

Your last statement balance means that you’re now being asked to start making payments or developing a plan to pay back what you have spent. At this point, you’ll be required, at the very least, to start making minimum payments on your statement balance. Generally, this is a small percentage of what you owe and will be clearly marked on your credit card statement.

You do also have the option to pay off your entire statement balance. By doing this, you would avoid incurring any interest charges (the cost of borrowing). Credit card companies only charge you interest if you start carrying a statement balance. If you pay off the entire balance every month, you don’t owe any additional charges.

By paying on time, you can avoid late fees and protect your credit score. If you’re unable to pay your full statement balance, you can still avoid issues by making at least the minimum payment. You will start incurring additional interest costs on the remaining outstanding balance, but your credit won’t be affected.

Will paying off your credit card balance improve your credit score?

While you technically aren’t required to pay off your credit card balance until it’s recorded on your statement, there are reasons you may want to pay it off sooner. Your credit score, the metric used by companies to determine how trusted a borrower you are, is affected by how much outstanding debt you have. The more credit that you have access to that you’re not using, the higher your credit score will be. This is known as credit utilization and is the second most important factor in credit scoring after making on-time payments.

Unlike the bank or credit union that doesn’t take into account your current balance to calculate interest charges, the credit reporting bureaus look at your current balance when determining your credit score. If you are carrying a big balance when your credit card issuer reports to the credit bureaus, your credit score may go down, even if you are paying it off in full every single month.

Bottom line

Statement balance is how banks and credit unions communicate the dollar amount of new charges you’ve accrued on your credit card every statement period. While you don’t owe interest on the money you’ve spent until it’s recorded in your statement balance, it can still have an effect on your credit score. Clearly understanding the differences between current balance, statement balance and total balance can help you better manage your finances and stay out in front of your financial obligations.