If you’ve ever checked your credit card statement balance and noticed that it’s different from your current balance, you can relax. You’re not losing your sanity.
The reason for the discrepancy is that your credit card statement balance is the amount you owed on the closing date of the last billing cycle. Your current balance includes any purchases and payments you’ve made in the current billing cycle.
Let’s take a closer look at each type of 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.
— What is a statement balance?
— What does current balance mean?
— Difference between statement balance and current balance.
— How balances impact your credit score.
— Which balance to pay to avoid interest charges.
[Read: Best Rewards Credit Cards.]
What Is a Statement Balance?
Credit cards have billing cycles, and the closing dates vary by issuer but generally range from 28 to 31 days. 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.
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 that statement. If you did, your statement balance remains $500 until the next billing cycle closes. But your current balance will be reduced by your $500 payment once it’s posted.
[Read: Best Balance Transfer Credit Cards.]
What Does Current Balance Mean?
When you look at your credit card statements online, you can see both the statement balance and the current balance. Although your statement balance from the previous billing cycle stays the same, your current balance fluctuates because it includes any new purchases or payments you’ve made since the last closing date.
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. I check my current balance on my credit cards every day to look for fraudulent purchases.
There’s also another positive side effect to being aware of your credit cards’ current balances: Seeing my balance is a visual reminder of how much I spent and where I spent it. It’s easy to pay for items with a credit card. And it’s also easy to forget how much you’ve spent!
[Read: Best Low-Interest Credit Cards.]
Difference Between Statement Balance and Current Balance
As mentioned, 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, which could make your current balance higher than your statement 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.
So that’s why the statement balance and the current balance are sometimes at odds. But if you find that the two balances don’t make sense given the transactions you’ve made, contact your credit card issuer to confirm your current balance and to rule out fraud.
How Balances Impact Your Credit Score
Your statement balance is usually what’s reported to the credit bureaus by the major card issuers, but policy differs among issuers. Some may actually report your current balance. You can call your issuer and ask how your balance is reported to the credit bureaus.
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. For example, let’s say you have a credit card with a $1,000 credit limit. If you have a $500 balance, your utilization ratio is 50% (500/1,000), which is too high.
The golden rule for credit scores? If your ratio is more than 30%, it can lower your score. But if you want to increase your score, keep the ratio to less than 10%. Knowing when your issuer reports to the major bureaus can help you manage your ratio.
For instance, if you plan to apply for credit soon, make a payment before the issuer reports your balance. This way, the reported balance is lower (or zero). A lower credit utilization ratio not only looks better to a lender, but it also can boost your credit score.
Which Balance to Pay to Avoid Interest Charges
If you paid your bill in full during the previous cycle, you’ll have a grace period with your purchases, and the statement balance is the amount you must 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.
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: Call your credit card company and ask to change your due date to a more optimal time of the month. Some issuers even allow you to change your due date online.
Not every issuer will allow due date changes, but most of the major credit card issuers do, so take advantage of this option if you can. Keeping low credit utilization ratios and maintaining a stellar payment history can lead the way to an excellent credit score.
More from U.S. News
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Credit Card Statement Balance vs. Current Balance: What’s the Difference? originally appeared on usnews.com