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A credit card balance is the amount of money that you currently owe on your credit card. This number changes frequently, rising and falling as you make purchases, accrue interest, get credits, and make payments. Your credit card balance is not the same thing as your statement balance, which is how much you need to pay for the current statement period. Confused? Not to worry. Here, we explain what a credit card balance is, how it affects your statement balance, and why it’s important to keep track of.
How Is a Credit Card Balance Calculated
Your credit card account balance is calculated by adding up your charges, any fees (such as a late payment fee or annual fee) you owe, and any interest you’ve accrued, minus any credits or payments you’ve made. The resulting number is your credit card account balance. If the amount of payments and credits exceed the amount of the purchases, fees, interest, and penalties, it’s described as a negative balance. This is true for both traditional credit cards and secured credit cards. Your credit card balance will fluctuate throughout the month depending on how often you use the card. Your balance is typically updated around 24 to 72 hours after a purchase or payment has been made.Here’s a list of factors that affect your credit card balance:
Purchases
Fees
Interest
Penalties
Payments
Credits
Purchases
Purchases often represent the majority of transactions on a credit card account. However, there is one nuance that you’ll want to be aware of. With many charges, the purchase amount is initially listed as “pending” for a day or two before it actually affects your credit card account balance. A pending charge won’t affect your credit card balance until it’s finalized. However, the amount of a pending charge will affect your available credit.
Fees
Credit cards can charge a variety of fees, including:
Annual fees
Balance transfer fees
Cash advance fees
Foreign transaction fees
When you are charged a fee, it will get added to your credit card balance just like a purchase.
Interest
If you only pay the minimum on your monthly credit card bill and carry a balance to the next month, you will typically pay interest on that balance. Many credit cards calculate your interest charges using an average daily balance method. This means your annual percentage rate (APR) is divided by 365 (days) to create a daily rate. This daily rate is then multiplied by your average daily balance for the billing cycle, which represents interest for one day. That number is then multiplied by the number of days in your billing cycle (typically 30). The exact method for calculating interest can vary from one card to the next (and is explained in your credit card agreement). But the bottom line is this: If you carry a balance, you will pay interest on it. That’s why weighing credit card rates before applying for one can be so important. If there’s any chance you will carry a balance, you’ll want to pay the lowest possible APR.Recommended: Average Credit Card Interest Rates for 2024
Penalties
Penalties are similar to fees in that they are one-time charges. Penalties, however, are incurred only when you break the terms of the credit card agreement. If you pay your statement bill after the due date, for example, you will likely incur a late fee. If you pay by check and the check does not clear, you may get hit with a returned check fee. As with other fees and purchases, penalties are added to your credit card account balance.
Payments
The way credit card payments work is that when you pay your bill (electronically or by sending a check in the mail), the money is credited to your account’s balance on the day it’s received.Payments have a big influence on your credit card balance. That’s why it’s generally recommended that you pay off your entire statement balance by the payment due date. You don't need to pay the entire current balance to avoid interest charges, just the statement balance. If you opt to make only the minimum payment, you’ll avoid a late fee. However, any balance you leave behind will accrue interest.
Credits
Beyond payments, there are several types of credits that can factor into your credit card balance. When you return an item purchased on your credit card, for example, the seller will issue a refund to your account. How long it will take for that credit to be reflected in your credit card balance will depend on the type of purchase and the merchant. It can run anywhere from a few to 15 days.Credits also include cash back reward credits and refunds of fees that customer service waives. Recommended: How Do Credit Cards Work? Complete Guide
Differences Between a Credit Card Account Balance and Statement Balance
Some credit card terminologies can be confusing. This is definitely the case with credit card account balance vs. credit card statement balance. Your statement balance is similar to your credit card balance, but it is captured at the end of your billing cycle and doesn't fluctuate.You’ll see your statement balance when you review your credit card statement each month. Your statement balance is how much you owe on the card at the end of the billing cycle. It doesn’t include any charges or credits that came through after the billing cycle ended. This is why your current credit card balance and statement balance may be different. Unlike your credit card balance, your statement balance will remain fixed until the next statement is issued.
Credit Card Balance
Statement Balance
Represents the account’s current balance
Represents the balance at the end of the billing cycle
Includes fees, interest, penalties and credits, as well as any purchases or payments you've made
Includes fees, interest, penalties and credits, as well as any purchases or payments you've made
Fluctuates from day to day
Doesn’t change throughout the month
Should You Carry a Credit Card Account Balance?
Credit cards allow you to pay only a minimum amount and carry the balance. However, if you don’t pay the entire statement balance before the due date, then you will incur interest charges (unless you have a card with a 0% APR introductory rate and you are still within that period). The least expensive way to use a credit card is to pay your entire statement balance in full and on time each month. If you are strapped for cash and can’t pay the full statement balance, you may still want to pay more than the minimum monthly payment. This will help knock down your balance and, as a result, accumulate less interest.Maintaining a low balance on your credit card can also be a way to build your credit score. That’s because how much of your available credit you are using (called credit utilization) factors into your credit scores.If you’re struggling to pay off multiple credit card balances each month, it might be worth considering credit card consolidation. This involves rolling all of your credit card balances into one monthly payment using a personal loan or one credit card, ideally with a lower interest rate.
Where to Find Your Credit Card Balance
You can find your account’s current balance by logging into your credit card account online or using your card issuer’s mobile app. You can also get your current balance by calling the 800 number on the back of your card, which is typically an automated response system. Your card’s statement balance will appear online, on the card’s app, as well as on your monthly statement.
The Takeaway
In order to understand how credit cards operate, it’s important for credit card users to know what credit card balance means and how it’s calculated. A credit card balance is the total amount of money you currently owe your credit card company. This number changes throughout the month. It goes up when you make purchases or get hit with fees or interest charges; it goes down when you return a purchase, get a credit, or make a payment. Your statement balance is different – it’s the amount you owe at the end of the billing cycle. If you only pay the minimum, you will carry the balance over to the next billing cycle and get charged interest on that balance. How much interest you’re charged will depend on your credit card’s interest rate.If you sometimes need to carry a balance, it can pay to shop around to find the lowest rate card you can qualify for. With Lantern by SoFi’s credit card marketplace, you can quickly compare offers from multiple credit card issuers all in one place, and without making any commitment.
Frequently Asked Questions
How can I check the balance on my credit card?
Is it bad to have a negative balance on a credit card?
How much of a balance is OK on my credit card?
Photo credit: iStock/Sneksy
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About the Author
Jason Steele
Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
