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Credit cards can be a wonderful resource when you need to purchase something and do not have the money for it, at the moment of purchase. However, it can be a catch twenty-two situation should you not be able to pay back the credit card loan within the stipulated time period. Overuse of credit cards can eventually lead you more into debt if you don’t plan your finances to fit within your means and end up spending more than you make. Your credit cards can easily get out of control, and once you are in debt, it makes it really hard to get out of.
In order to manage your credit card (s) effectively, you need to monitor the expenses that you put on your credit and ensure they are paid in a timely manner before a negative impact snowballs out of control.
Understanding your Credit Card statements is the first step to ensure you manage your interactions properly and that you abide by the Credit Card terms and conditions. However, being able to read and comprehend your credit card bills when they arrive can be a little confusing because it will show you two balances… a ‘statement’ balance and a ‘current’ balance. This can confuse you with what balance has to be paid by the due date.
To help you understand these two balances, I have laid out an explanation of each that can shed some light for you. Once you understand the difference, you will know which one to focus on at the time of paying your bill..
The main differences between Statement and Current Balance
The main differences between Statement and Current Balance are:
- Statement Balance has a billing cycle, whereas a Current Balance does not
- Statement Balance has a fixed amount at the end of a billing cycle, whereas a Current Balance fluctuates within a time period
- Statement Balance has a due date, whereas Current Balance does not
- Statement Balance state’s money owed at the end of the billing cycle, the Current Balance shows current unpaid purchases
- Statement Balance shows interest rates and past-due charges on the latest charges, the Current Balance does not
Each has similarities too, such as:
- Both appear on your monthly bill
- Both affect your credit score if you pay late
- Both are important figures to monitor
Statement Balance
Your credit card billing statement usually cycles every 30 days. To know what billing cycle your credit cards follow, you can check your cardholder agreement.
A statement balance summarizes all of your credit card activities within the billing cycle period. For example, if your credit card’s billing cycle is Sept 1 – 30, then any purchases, returns/ credits, interest, late payment fees within the 30-day window will appear on your statement.
Current Balance
Your current balance will appear on your bill too. The current balance is where your debt is at a point and time. This balance will reflect any purchases you made after your last bill was issued. For example, if your credit card statement was issued Sept 30th and reflects a statement balance of $1,000 and then you bought something on October 1 for $500, your current balance will show $1,500.
How do you know if you should pay for the Statement Balance or the Current Balance?
It is normally expected for you to pay the balance on your statement. The statement balance is money owing from the balance forward from the previous statement to the last billing statement. If you have money owing from a month ago, it will carry forward. It will then grow with interest and late payment fees if you were negligent in paying on time, and with any further purchases that you made. If you returned items or made any further payments with this time frame, it will account for that too.
Really, the fact is, you can pay either the statement balance or the current balance. If you want to pay your credit card off, you can pay all your expenses to date, which will be the current balance. However, if you want to take advantage of the grace period for the items you bought after your statement date, then focus on paying your statement balance.
If you do not have enough money to pay off your statement balance, then you should pay as much as you can afford, or at least the minimum payment they requested on your bill.
Your payment should be submitted a few days before the due date to ensure you meet the due date and it should at least be the minimum payment or more. If not, you could face late payment fees and interest charges.
Credit Utilization Ratio
A credit utilization ratio affects your credit score. The lower the utilization, the better. The higher the utilization actually lowers your credit score, making it more difficult for you to borrow money and will probably affect your interest rates on future loans from different lenders. That is because it shows lenders you are at a higher risk… meaning the likelihood of being reimbursed can be dicey. They may consider any loaned money will probably take longer than the required time and could even make lenders uncertain that they will ever be paid back.
When you are approved for credit, the loan company will give you a limit. The more you spend then the more you use on your limit. The ratio is a percentage of used credit. For example, if your credit limit is $5,000 and you spend $3,000, then you only have $2,000 available for use. Your credit utilization ratio is calculated as this: $3,000/ $5,000= 60%. So you have used up to 60% of your credit limit.
If you make a payment of $2,000, then your ratio will decrease to 20% ($3,000-$2000=$1000/$5000=20%). This will reflect on your credit score. So people with a 20% ratio will probably receive more favorable credit and interest rates from lenders than people with ratios scoring 60%. The less you owe on credit cards, the better your credit score is and the more lenders are comfortable with you and will offer higher credit limits and lower interest rates.
Grace Period
A grace period is a gap in time between the statement date and the due date. Paying your credit card statement before the due date period falls within the grace period, which helps to avoid any penalties with delinquent payments.
If you pay outside the grace period, then you are subject to late fees and also interest charges. When you pay minimum charges outside the grace period, you are also subject to late fees but also and compound interest rates. If you ‘continually’ pay minimum charges outside the grace period, you are not only subject to late fees, and compound interest charges but also, often, you are subject to an interest rate increase. Check with the cardholder agreement to see the rules, but they monitor how you consecutively pay and will adjust your interest rates accordingly and it is usually an increase, not a decrease. However, after a year of paying on time, you can contact the lender to have the interest rates reduced. If they refuse, then pursue another lender and move your credit card expenses to a new card. If you do that, cancel the card you moved from so you don’t rack up bills on the higher interest rate card and inadvertently continue using the new card too. That would get you deeper into debt, which makes it so much harder to get out of.
TIP: Due Date and Payment Dates need to be thought out before making your payments. If your due date is June 30 and you pay June 30th, keep in mind that most institutes with online payments take a few days to process your payment. The credit card companies may not receive your payment the day you made it, but will receive it days later. Hence, they hit you with an interest charge, late payment fee, and likely report you to the credit bureau, hurting your credit score rating.
Paying the minimum payment
If you cannot pay off your credit card statement at the specified due date, then consider making the minimum payment that they suggest on your statement. If you do so, and you make the payment before the due date, then you will avoid late fees.
Credit bureaus
Any amount unpaid from your ‘Statement’ balance will be carried over to next month, but it will also be reported to various credit bureaus. They will know any outstanding amounts that you still owe. Therefore, if you apply to increase your credit limit on your credit card or apply for a new card, the lenders will look up your status to understand your financial owing situation vs your assets to see whether you are a good candidate to loan money to or if they should reject you because your financial status is not healthy and makes you unreliable to pay back the loan.
Pros & Cons of Statement of Balance
Pros
- you get a detailed list of purchases and payments applied within a billing cycle, like Dec 1 to Dec 31.
- You receive specific late payment charges and interest charges at the end of the billing cycle. Even though this may be considered a negative point since nobody likes to be penalized with these charges, the details are listed on the statement for your review…so the fees are visual and not hidden from you.
- You are given a grace period between the billing date and the due date
- You are provided a minimum payment amount, due date, credit limit, balance owing, the amount left on your credit limit, latest interest rate percentage, late payment fees, and balance carried forward from last month.
Cons
- it is not a living document that shows you up-dated purchases, returns, and payments.
- You have to wait until the billing cycle ends to find out your billing status
- You need to determine transaction timing with your financial institute, snail mail, or whatever payment resource you use, with the credit card due date to ensure you meet the payment due date… you are at their mercy if you make a transaction payment too close to the due date.
Pros & Cons of Current Balance
Pros
- you get the latest update on the current balance
- You will get a detailed list of your latest debit and credit transactions
Cons
- you do not get past transaction history, beyond the billing date
- You do not get information on the upcoming interest charge fees
- If you feel you are going to pay late, you will not know what penalty you will have to pay in a potential increase in interest fees and late payment fees plus what interest rate they will increase your rate to should your payments continue to be late.
Things to consider for your Statement Balance vs Current Balance
Monitoring your Statement Balance & Current Balance
Before paying for your Statement Balance or your Current Balance, review all your transactions. Make sure you account for all the purchases, returns, and any other charges. Do they all make sense to you? If anything looks questionable, contact your credit card company immediately to get more information on the transaction(s). If you did not make the purchase, then tell them you are disputing it. Maybe some fraudulent activity has happened. If so, it is best to catch it at the moment so it does not get further out of hand. Your credit card company will probably stop any use of your credit card and send you a new one with a new number. Being proactive and diligent in watching your credit card bills will help troubleshoot problems and is an effective way to ensure no further disputable charges apply to your account.
TIP: Keep your receipts and match them with your credit card bill on a monthly basis.
Lost or Stolen Credit Cards
If you lost your card or feel that it was stolen, contact your credit card company as soon as possible. They will cancel the card and mail you a new one with a new account number. All your previous transactions will be transferred to the new card. So, be sure to monitor your Statement Balance and Current Balances during this process to ensure you can account for all your transactions. If any transactions are suspicious, let them know. Be sure, to be honest with your credit card company and do not make false accusations or say you didn’t purchase something that you did. Note, when a new card is issued, you are still liable for all transactions that are open on your older card. They simply do not go away once the card is canceled and replaced.
TIP: Keep a record of your credit card account # and CVS code, PIN#, and your credit card toll-free number, in a safe place for easy reference. In a safe at home or a bank’s safe deposit box, on a USB with a password, in your computer with password protection… somewhere where it can’t be found by fraudulent people.
FAQ
Answer: Your current balance is higher than your statement balance because you likely made more purchases on your credit card right after the credit card statement was issued.
Budgeting is a great way to plan your finances. A budget can show you your monthly income and when you get paid. You can then populate your budget with your outgoing expenses to determine what costs go out and when. The final balance will show what is left over. Therefore, this allows you to determine what you can afford. So, when there is something that you want or need to purchase and you do not have the money for it, you can then determine if you need to use your credit card.
If you need to use your credit card, then you can budget for that too, to see when you can pay it off. Information is key. You should always make a budget plan and plan your credit card expenses accordingly. You should never just use your credit card and then figure how you’re going to pay it off afterward. This way of thinking will set you up for a poor financial status situation.
Answer: Yes, if you use your credit card regularly or continuing to have a balance forward amount, automating your payment transactions is a great way to ensure you pay on time to avoid late payment charges and to avoid the lender increasing your interest rates.
If you cannot afford to pay off your credit card, at least enter your minimum payment amount. For making additional payments, it is easy to add more money transactions to your card, if you can afford it. By doing an automated minimum payment on the due date takes any worry of missing the due date and facing a penalty.
In summary
A statement balance vs. a current balance is confusing. I know, I have been there. Looking at your bill and finding two different balances really makes it hard to understand what amount you should pay. The best answer is to pay your statement balance in full days before the due date. This will ensure you have taken advantage of the grace period, and avoid late fees, and/or interest charges.
If you want to pay your current balance owing, that will include your statement balance plus any recent transaction charges, then there is no rule in doing that. You are free to do that too.
Should you know you are returning some items, or are owed a credit that is NOT on your statement balance, then you could either just pay the credit card statement and have a negative amount on your credit card once your return has occurred, or contact the credit card company and explain your situation. They will give you advice and maybe even a new balance owing to your statement to pay. This may help you avoid an interest charge with a carry-forward amount. Should you overpay your credit card, contact them and have them reimburse you.
The primary goal with credit cards is to avoid late payment fees, higher interest rates, to keep your credit score healthy, to stay out of debt as much as possible, and all the while enjoying the availability of credit when you need it.
