Credit card statement balance vs. current balance

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In a Nutshell

Your statement balance shows what you owed on your credit card at the end of your last billing cycle, whereas your current balance reflects how much you actually owe in total at any given moment. While paying your statement balance by the due date is typically enough to avoid interest charges, you should consider paying your current balance in full, which could improve your credit utilization ratio.

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If you use your credit card for day-to-day purchases, there’s a good chance that your statement balance will be different from your current balance. Here’s why.

Your statement balance is a snapshot of all the expenses and payments that were made to your account during one billing cycle. Once your statement balance is generated, it will not change until your next billing cycle closes — but that doesn’t mean your credit card balance won’t change.

That’s because your current balance reflects the current total of all charges and payments to your account — and that changes every time a transaction occurs. So if you’ve made a few purchases since your statement closing date (the date that one billing cycle closes and after which the next begins), then your current balance will be higher than your statement balance. On the other hand, if you’ve made a payment since your statement closing date and no other transactions have occurred, then your current balance will likely be lower than your statement balance.

Paying your statement balance in full before or by its due date can help you save money on interest charges. And paying your current balance in full by its deadline can improve your credit utilization ratio and your credit health.

Pay off your statement balance to avoid interest charges

Generally, as long as you consistently pay off your statement balance in full by its due date each billing cycle, you’ll avoid having to pay interest charges on your credit card bill. This is why you should strive to pay off each billing cycle’s statement balance by the due date whenever possible.

But life happens. If you can’t afford to pay off your entire credit card statement balance by the due date, make at least your minimum payment. This will cause you to accrue interest, but making at least your minimum payment on time will help you avoid late fees and negative marks on your credit reports.

Credit card issuers aren’t required to offer grace periods, but if an issuer chooses to, it must give customers a grace period of at least 21 days from mailing or delivering a customer’s statement to allow them to pay off the statement balance listed with no added interest charges.

Credit card issuers typically offer a grace period of at least 21 days from mailing or delivering a customer’s statement to allow them to pay off the statement balance listed with no added interest charges.

Using automatic payments to avoid interest charges

The advent of online billing and payment options has made it possible for many credit card issuers to offer automatic payments to their customers.

Check with your credit card issuer to see if autopay is available. If so, there’s a good chance that you’ll be able to select “statement balance” as your automatic payment choice.

Autopay could help you stay on top of your bills and avoid late payments and interest charges on your purchases. It’s also a good idea to set a reminder on your calendar a few days before your payment date to make sure there are enough funds in your bank account to process the payment.

Exceptions

Some transactions, like cash advances, do not fall under the same “grace period” rules that typically apply to purchases. Instead, they begin accruing interest the moment you take one out.

So if you’ve recently taken out a cash advance on your credit card, we suggest paying it off as soon as possible, regardless of whether you’ve received your statement yet.

How your current balance affects credit utilization ratio

Depending on how your credit card issuer reports your account balances to the consumer credit bureaus, your current balance could affect your credit utilization ratio.

Your credit utilization rate is simply how much of your available credit you’re using at any given time. We have a great guide on credit utilization and how it can affect your credit scores. But for the purpose of this article, suffice it to say that the lower your credit utilization rate, the better.

Credit bureaus calculate credit utilization rates off the balances that they receive from credit card issuers. Many issuers report their cardholders’ statement balances, but some may send current balances instead.

If you’re worried about this, check with your credit card issuer to find out which balance it reports to the credit bureaus. If your issuer happens to report current balances instead of statement balances, ask which day of the month that it reports.

If you’re ever worried about your credit utilization rate being too high, aim to pay down your current balance whenever possible. A good goal is a current balance below 35% or below your total credit limit.

Bottom line

When it comes to the question of whether you should pay your credit card statement balance or current balance each month, it really boils down to personal preference and financial goals.

If you choose to pay off your statement balance by the due date each month, that’s a great choice. And if you choose to pay off your total current balance by the due date each month, that’s a great choice, too!

With either choice, you’ll avoid the interest charges that come with only making minimum payments on your credit card purchases. Plus, you’ll drive down your credit utilization ratio, which may help your credit health. The fact that you’re asking the question at all is great news, because it shows that you’re someone who takes credit seriously.


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About the author: Clint Proctor is a freelance writer and founder of WalletWiseGuy.com, where he writes about how students and m… Read more.