When it comes to paying your credit card bill, understanding the difference between the statement balance vs current balance can be handy.
Not only will it help you save money, but it can also help you maintain or improve your credit score.
In this article, we will be looking at what each balance represents, the differences between the two, and how you can decide which one to pay.
What’s the Difference Between Statement Balance and Current Balance
Simply put, the difference between the two is that the current balance will reflect the total amount that you owe to the credit card company, while the statement balance will reflect only the recent payment and charges that were made during the current billing cycle.
Before we look at each type of statement, it is worth looking at how a credit card company issues statements.
This can help you see the bigger picture and plan ahead accordingly so that you do not unnecessarily miss any payments that become due.
Credit cards use billing cycles to determine when a credit card balance is due. In most cases, a billing cycle runs for 30 days.
While this might sound like a monthly cycle, this is not always the case. Not all billing cycles start at the beginning of the month and as such need to be worked out accordingly.
Generally speaking, cycles can start on any day of the month, and end the following month on the exact same day minus one.
This means that, as an example, a cycle that starts on the 5th of November, will end on the 4th of December, covering around 30 days.
What goes in a billing cycle?
A billing cycle covers all of the transactions that happen within that cycle.
This can include any of the following, depending on the transactions carried out within that specific cycle;
When the cycle ends, the account balance is issued, effectively showing the state of the account at the end of that cycle.
To this end, both the credit card Statement Balance as well as the Current Balance are two sides of the same coin.
Understanding the differences between the two can help you decide which one to pay. This is what we will be looking at next.
What is a Statement Balance?
The Statement Balance is one type of balance issued at the end of a billing cycle. It includes all of the charges less any payments made to the credit card account during the last full cycle.
This means that the Statement Balance will start from the previous balance and add any purchases, payments, charges, credits, and fees that happen or become payable during that cycle.
You can expect the Statement Balance to include the following, where applicable:
What this means is that the Statement Balance is what you effectively owe your credit card issuer for that cycle. This is also known as the new balance.
It is the balance that shows up on your credit card statement.
Why is the Statement Balance significant?
While all balances are essential, the Statement Balance carries a special type of importance.
This is because the statement balance is the credit report that gets sent to the 3 main credit bureaus. These include Experian, Equifax, and TransUnion.
To keep your credit score in good shape, make sure that the statement balance is paid in full by the due date.
This also has the added benefit of helping you avoid higher charged interest rates.
We will cover different scenarios later in this article to help you make sure you pay the right balance.
What is a Current Balance?
Just like the Statement Balance, the Current Balance shows you what you owe on your credit card, but they’re different balances.
The biggest difference here is that, unlike the Statement Balance, it does not follow the billing cycle.
This means that while you do owe what the current balance shows, it might not necessarily be payable yet.
The Current Balance can change daily as transactions are posted to your credit card account.
Generally, the Current Balance includes all types of transactions, including:
While the Current Balance might not be due in full, the balance will become due at the end of the current billing cycle. This is true for any transactions done within the current billing cycle.
In a nutshell, this balance shows you everything that you owe the company, even if it’s not payable yet.
Why is the Current Balance significant?
The Current Balance is important because it shows you the state of your account at any given time.
Thanks to Current Balance, you do not have to wait till the end of the billing cycle to find out what you need to pay.
In fact, you can subtract the Statement Balance from the Current Balance to find out what you will owe at the end of the current billing cycle.
Of course, you will also need to add any future transactions that you do within the current billing cycle.
As an example, let’s say that the Statement Balance is showing -$500 while the Current Balance is showing -$700.
This means that for the cycle that just ended, you owe $500. When the next bill comes out, you can expect to see the $200 ($700 – $500 = $200) plus any other transactions done between the date of the Current Balance and the end of the billing cycle.
This means that you will be able to get a sneak-peek preview of what the next payment is going to look like.
This can help you to plan, such as trying to cut back from non-essential purchases if it’s slightly high. This will help you to avoid issues when the balance becomes due.
Should I Pay Statement Balance or Current Balance?
The short answer is that it really depends. You need to think about a couple of things before deciding which balance to pay.
There are some advantages and disadvantages to both, depending on your financial situation at the time and the financial targets you have planned for yourself.
We will be discussing these next, going through different scenarios to help you decide the best way forward.
While making just the minimum payment can lead to higher interest rates, it does help you avoid late payment fees.
Paying the minimum amount can also help you avoid late payment reporting to the credit agencies, which can lead to the lowering of your credit score.
Making the minimum payment can give you some room to breathe should you find yourself in a tight financial spot.
Try to avoid making the minimum payment for more than one billing cycle, especially if you’re at your credit limit as this can build up the interest rate leading to even higher bills.
Aim at paying the statement balance in full by the due date to keep everything running as smoothly as possible.
Improve Your Credit Utilization Ratio
Credit Utilization Rate is a metric that is often used to determine your credit score. It shows what percentage of credit you use from the total amount of credit that is available to you.
So as an example, if you have two credit cards with $5,000 available on each, then your available credit is set at $10,000.
Now, let’s imagine that you have a balance of $4,000 on both. This means that your Credit Utilization Rate is 20% – you are using 20% of the credit that is available to you.
The lower your rate, the better your credit score can get. If you’re looking to improve your credit utilization rate, you might want to pay the Current Balance so that by the end of the billing cycle, when the statement comes out and is sent to the credit bureaus, you have a lower credit utilization showing on your balance.
If what you want is a super-low credit utilization rate, one way to improve this is to pay your current balance (everything you owed on your account, or your total amount due) a few days before your statement closing date.
When is your statement closing date? At the end of your billing cycle – or the day your credit card issuer creates your next statement (your next billing cycle starts).
When you lay your current balance before this date, your new statement will say that you owe $0 from the previous billing cycle.
This means a 0% credit utilization rate, which is amazing if you’re about to do something financially important, like apply for a mortgage.
If you’re looking to reduce your debt, paying as much as possible is always a good idea.
This is especially true if you’re trying to reduce debt to improve your credit score. In this case, you should be paying more than the minimum payment.
Paying the statement balance in full is enough to ensure you do not get charged higher interest rates, helping you rein in debt.
You can go a step further and pay the Current Balance but before you do remember to check if you have any other pending payments that are due or in arrears.
Avoid Interest Charges
Avoiding higher interest rates is always a good move, as this will help you free up future cash.
Credit cards can accumulate high interest rates when not paid in full, with late fees payable on top of interest when the minimum payment is not paid by the due date.
Paying the full statement balance within the grace period will help you avoid higher interest rates.
If you have extra cash, you might also want to consider paying the current balance and kill two birds with one stone – improve your credit utilization rate and receive a lower bill once the current billing cycle ends.
One of the easiest ways to keep things organized for cardholders is to set up automatic payments from their bank account each month.
This way, you won’t forget to make payments and will never accidentally miss the due date.
Statement Balance vs. Current Balance
Credit cards can improve your personal finance, as long as you keep yourself in good standing.
The good news is that as we just saw, there are different ways to do so.
Depending on your financial situation and financial goals, paying the right amount can help you get back on your feet and improve your financial standing.
One way to make the most out of your credit card is to look for the best credit cards – especially ones that come with promotions and offers.
Here you can take advantage of lower interest rates, cash back on purchases, and many other benefits – depending on the offer.
Do take note of the terms and conditions before committing yourself to any offer, making sure that you’re completely comfortable with the deal.
Credit card debt (all those unpaid balances that are long overdue!) can put a serious dent in your financial situation.
Making all of the necessary payments can free up money that can be utilized better elsewhere, such as building your emergency fund.
If you’re struggling with making payments, try using the snowball method, or look for budgeting software to help you stay on top of your finances.