If you’ve ever checked your credit card statement balance and been surprised by the amount, you can relax. You’re not losing your sanity.
The reason for the discrepancy is that your statement balance is the amount you owe on the closing date of the last billing cycle. But it doesn’t reflect purchases you’ve made since that date.
Let’s take a closer look at each balance, and you’ll see what I mean. Credit cards aren’t always easy to figure out, but I promise this is going to be a piece of cake.
Your Credit Card Statement Balance
Credit cards have billing cycles, and the closing dates vary by issuer. For example, let’s say your billing cycle starts on the first of the month and ends on the 30th. The amount owed on the 30th is your statement balance for that billing cycle. Note: If you are carrying a balance from the previous month, then this amount, along with the accrued interest, is included in the amount due for that billing cycle.
Let’s assume you paid your bill in full during the previous cycle. If so, you’ll have a grace period with your purchases, and the statement balance is the amount you have to pay to avoid interest charges. Whether you pay off the amount due or just make the minimum payment, pay it on time to avoid a drop in your credit score.
So, let’s say your statement balance on the closing date of the previous billing cycle is $500. Hopefully, you paid the entire $500 by the due date on the statement.
Now, your statement balance remains $500 until the next billing cycle closes. But your current balance will reflect your $500 payment.
Your Current Credit Card Balance
OK, we’re switching gears now. Although your statement balance from the previous billing cycle stays the same, your current balance includes any new purchases or payments you’ve made since that last closing date.
Your current balance could be higher or lower than the statement balance, depending on the type of transactions you’ve made. You’ve probably made new purchases, and that increases your current balance. Or maybe you made an extra payment on your account, and it was posted after the closing date. In this scenario, your current balance could be lower than your statement balance.
With my credit cards, I check the accounts online every day. Every issuer offers account information in a different way, but most likely you can see your balances and any pending transactions that aren’t yet included in the balance.
But with some credit cards, pending transactions still decrease your available funds, which effectively lowers your credit limit. If your available credit was $1,000, but then you made purchases and had $100 in pending transactions, your available credit would now be $900. So, be sure you understand your credit card company’s policies when you’re viewing your statement.
Staying on top of your current balance does two things for you. First, it makes you aware of how much you’ve spent so you can stay on budget. Second, reviewing your accounts online frequently can help you catch fraud in the early stages.
How Your Balances Can Impact Your Credit Score
Your statement balance is usually what’s reported to the credit bureaus by the major card issuers. This is important to note because it impacts your credit utilization ratio, which is the amount of credit used compared with the amount of credit available.
The golden rule for credit scores? If your ratio is over 30%, it can lower your score. So be mindful of that and protect your credit score by making timely payments and keeping low balances.
By the way, are you having trouble paying your bill in full and on time? Sometimes, this happens because the due date doesn’t match up well with your paycheck.
Here’s a simple solution: Change your due date to a more optimal time of the month. Not every issuer will allow this, but most of the major credit card issuers do, so take advantage of this option. Keeping low ratios and maintaining a stellar payment history can lead the way to an excellent credit score.