If you get confused about your credit card statement balance versus your current balance, read on and find out which one you need to pay.
But what if you have two different balances – a statement balance and a current balance?
Keep reading to find out more about the difference between your credit card statement balance and your current balance, including expert advice on which one you should pay to avoid those dreaded interest charges.
What is your statement balance?
Your statement balance is is the amount you owe at the end of when the billing cycle ends. It includes all of your purchases, interest charges, fees and balances that are on your card since your last statement.
What is your current balance?
Your current balance shows the total of all of the charges, interest, credits and payments to your account, and it changes every time you use your card. Pending purchases do not become part of your current balance until they post.
Why can your statement balance differ from your current balance?
Think of it like this: Your statement balance is a summary of every transaction you made during your last billing cycle, while your current balance gives you a real-time snapshot of your spending.
For example, say you’ve spent $1,000 on your card during a statement cycle, and when you get your bill your statement and current balance are identical.
If you haven’t paid your bill and you charge another $100 on your card the day after you get your statement balance, your current balance will be $1,100.
How do card issuers calculate your balance?
Stephen Gunter, certified financial planner at Bridgeworth, said the way issuers calculate credit card balances is fairly straightforward.
They calculate your statement balance by adding all of the purchases you made, plus any interest or fees you may have accrued, minus any payments you made during the given time period (or billing cycle), he said.
“But those billing periods can, and often do, vary from card to card — in other words, it’s not always at the end of the month; for example, the statement for the credit card I use the most ends on the 8th of the month,” he added.
Issuers calculate your current balance by adding your statement balance plus any purchases, fees or interest and subtracting any payments you made since the end of your statement period.
“It’s basically everything that you owe to the credit card company as of that date,” Gunter explained.
Which balance should you pay to avoid interest charges?
Gunter said when you’re looking at statement versus current balances on credit cards, there are two main things to consider: interest you might pay and rewards you might receive.
As far as avoiding interest is concerned, paying either the current or the statement balance is going to keep you from paying interest – as long as you pay at least your statement balance, Gunter explained.
But Gunter always pays his statement balance – not his current balance – because of how his main card credits cash back.
He said he has some nice cash back rewards on his primary card, but that there are rules regarding how the issuer pays that cash back.
He earns part of the cash back rewards when he pays his bill (or statement balance) on time, but the issuer pays those rewards only once a month.
“So, if my current balance was $4,000 and my statement balance was $3,000 then I can only earn the cash back on the $3,000 of the statement balance,” Gunter explained.
“If I paid the current balance I’d forego earning cash back on that extra $1,000 that I paid,” he clarified.
The rules will likely differ from card to card, but it’s important to know how your rewards are earned so that you can maximize them.
Which balance does your issuer report – and when?
Paying off the statement balance is typically an effective strategy, as most creditors report the statement balance to the credit bureaus, said Martin Lynch, compliance manager and director of education at Cambridge Credit Counseling.
If that’s the case with your card issuer, paying the statement balance in full will allow you to avoid interest charges and keep your credit score healthy since your credit utilization ratio is based on the balance reported to the bureau, he added.
Experian explains credit utilization ratio as “the amount of revolving credit you’re currently using divided by the total amount of revolving credit you have available.”
So, say you have three credit cards and a total credit limit of $12,000. If you have a card balance of $4,000 your credit utilization rate would be 33.3%.
According to Experian, a good rule of thumb is to keep your total credit utilization rate below 30%.
Some creditors, however, report the current balance to the credit bureaus.
A good way to find out is to call your issuer and ask which balance it reports and on what day of the month.
“Armed with that information, you can adjust your payments accordingly and make sure you have the lowest balance possible on the day the creditor reports to the bureaus,” Lynch explained.
What is the best way to keep your credit card balance down?
It’s easy to overspend on a credit card – many times you don’t realize just how much you’ve spent until your bill comes.
It might sound overly simple, but spending just what you can afford to pay off each month is by far the best way to deal with credit card debt.
Your balance will be lower and easier to pay off each month, and you won’t have to worry about paying the minimum amount due and subjecting your carry-over balance to interest rates.
See related: 8 tips to keep credit card rates and fees low