It’s one of the more confusing things when it comes to your credit card – the difference between current balance and statement balance.
When you check your credit card balance, you’ll typically see two different numbers – a current balance and a statement balance. What’s the difference? And how much do you actually need to pay to avoid interest fees? 53 percent of Americans don’t “completely understand” their credit card terms – don’t be one of them!
Each card has a billing cycle – most billing cycles are one month long but don’t start and end with the calendar month. For example, your credit card billing cycle may go from the 8th of one month to the 7th of the next month. The credit card issuer will send you a bill once a month, at the end of your billing cycle.
Credit card companies are required by law to give you time to pay your bill, interest-free. In most cases, this is about 3 weeks. So if your cycle ends on the 4th, you’ll have until about the 25th to pay your balance due.
The statement balance is the amount shown on your bill and reflects the total amount that you owe on the credit card up to the end of your most recent billing cycle. This is the balance that you need to pay by the due date so that no interest is applied. Your statement balance does not change, until the end of your next billing cycle, when you get a new statement with a new statement balance due for that month.
Your current balance, on the other hand, changes day by day. This is the total amount of purchases on your card at any point in time. New purchases will increase your balance, while returns and payments you make will lower your current balance. If you are trying to calculate how much money you have, this is the total amount you owe that you should be taking into account.
Current Balance vs. Statement Balance
So what’s the difference? On your statement date, there won’t be a difference – your current balance will equal your statement balance. However, as you make more purchases or pay down a portion of your balance, your current balance will continue to change. By the time your due date has come, you’re likely to have made more purchases on your credit card. If you haven’t paid your bill yet, then your current balance will be higher than your statement balance.
Many people have the misconception that they have to set their balance to $0 to avoid financing charges. Guess what, you don’t ever need to have a $0 balance on your credit card! In order to avoid paying interest charges on a balance, you just need to pay your statement balance in full before your due date. New purchases you’ve made on your card will not start accruing interest until next month’s bill comes due, by which time you’ll hopefully have paid them off as well.
Why does it matter?
If your current balance is higher than your statement balance, it’s not necessarily a bad thing to pay it all off. Many people like the peace of mind of seeing a $0 balance outstanding. One thing to be aware of, though, is that the utilization reported to the credit bureaus is very often your statement balance. What does that mean?
Credit utilization is the second most important factor in your credit score calculation, and you typically want a low (not zero) balance reported. If you pay your balance down to $0 right before your statement date, that might actually be a bad thing – it looks to the bureaus as though you are not using your credit card at all! On the same note, if you typically have a high utilization, that’s not very good as well. Debitize can optimize your utilization for you, automatically!
Otherwise, paying more than your statement balance is really up to your preferences. Some consumers simply prefer to keep low balances.
Contrary to some misconceptions, paying your balance in full each month does not mean you ever have to show a $0 balance on your credit card. Simply pay your statement balance in full each month by your due date, regardless of your current balance at the time, and you’ll reap all your credit card benefits without paying a dime in interest and late fees. Paying off your current balance is usually not a bad thing, and may help you sleep better at night, but it won’t make any difference in fees.