OUTSTANDING BALANCE: WHAT IT MEANS AND HOW IT AFFECTS YOU

Outstanding balance is the total unpaid amount on your credit card. Read on lớn learn how it differs from other balances, and how much you should pay


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Summary

Outstanding balance, also known as current balance, refers lớn the total unpaid amount on your credit thẻ. This includes purchases, balance transfers, cash advance, interest charges & fees. Here’s how it differs from other balances on your credit thẻ statement.

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Understanding your credit card statement can be a bit of a balancing act.

That’s because the statement lists more than one balance. This might include what’s known as an outstanding balance.

So, what is an outstanding balance and how does it differ from other balances that pop up on your credit card statement? Follow along khổng lồ supercharge your knowledge of credit thẻ balances.

What is an outstanding balance on a credit card?

Outstanding balance, also known as current balance, refers to the total unpaid amount on your credit thẻ. This includes purchases, balance transfers, cash advance, interest charges và fees. The outstanding balance serves as a real-time snapshot of your credit thẻ tài khoản.

The outstanding balance changes every time you use your credit card, even from one minute to lớn the next. For instance, if you charge a $75 dinner to your credit thẻ, this $75 purchase will become part of the outstanding balance once the transaction posts khổng lồ your account.

The outstanding balance helps determine how much credit you have available at a given time. To come up with your available credit, subtract the outstanding balance from your credit limit và add any outstanding charges that haven’t shown up yet in your tài khoản.

So, let’s say your outstanding balance is $1,500 & your credit limit is $5,000, và there’s a pending transaction of $200 that hasn’t appeared on your tài khoản yet. At that moment, your available credit is $3,300 ($5,000 subtracted by $1,500 và $200 = $3,300).

Where vì chưng you find your account’s outstanding balance? You can find this information by logging into lớn your tài khoản online or through a mobile ứng dụng, or by contacting the company that issued the credit card (lượt thích American Express, Capital One, Chase or Citibank).

See related: How khổng lồ pay your credit thẻ bill

How does outstanding balance differ from current balance?

Even though the names are different, outstanding balance & current balance mean the same thing.

How does outstanding balance differ from statement balance?

Statement balance refers to the amount of money you owe based on the last statement, or bill , that you received. It also might be shown as monthly balance or new balance. This dollar amount may or may not be the same as the outstanding balance.

The statement balance reflects all of the purchases, interest charges, fees và other items that accrued during the most recent monthly billing cycle.

The billing cycle is a specific time period between billing statements. So, one billing cycle might run from May 9 (the opening date) khổng lồ June 8 (the closing date). The bill cycle doesn’t necessarily go from the first day to lớn the last day of each month.

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Keep in mind that the statement balance remains the same until the credit card issuer sends the next monthly statement. However, the statement balance & outstanding balance may or may not match.

This depends on whether there’s been any activity on your card since the statement balance was computed. If there has been activity between monthly statements, the statement balance and outstanding balance might be different. If there has not been any activity between monthly statements, the statement balance and outstanding balance might be identical.

See related: Does carrying a balance help your credit?

How much of your outstanding balance should you pay?

You’re staring at your credit card bill và wondering how much of your outstanding balance to lớn pay. The decision depends on your financial situation at the time.

The statement balance often exceeds the minimum amount due that appears on a monthly statement. Let’s say the statement balance is $2,000, but the minimum payment due is $50. At the very least, you should make the minimum $50 payment by the due date.

But if you want lớn avoid paying interest, you should pay the entire $2,000 statement balance. Paying the full statement balance is a smart way to escape interest charges.

Now, you don’t have lớn pay the outstanding balance to lớn steer clear of interest & fees. Paying the statement balance will take care of that.

But if you pay the entire outstanding balance, you can lower your credit utilization ratio. This ratio refers to lớn the amount of money you owe on all of your credit cards divided by the total of the credit card limits on your cards.

Here’s an example of how the credit utilization ratio works. You owe a total of $2,500 on your three credit cards. The total credit limit for all three cards is $10,000. This means you’re using 25% of your available credit, giving you a credit utilization ratio of 25%.

Why is the credit utilization ratio important? It typically represents 30% of your credit score. Some experts recommover keeping your credit utilization ratio below 30%. But others suggest lower amounts, lượt thích 25% or even 10%.


Tip: FICO’s credit scoring Model takes into lớn account your overall credit utilization và the debt-to-limit ratquả táo on your individual cards. But the former carries more weight when it comes to lớn your credit score.


How does your credit card balance affect your credit score?

Consistently making on-time credit card payments can help your credit score. But even if you’re making on-time payments, carrying big credit thẻ balances might hurt your credit score.

As we mentioned, your credit card balances can affect your credit score based on your credit utilization ratio – the overall amount you owe on your cards versus the overall credit limit.

A high credit utilization ratio can drag down your credit score. If a credit thẻ issuer sees that you carry high balances on your credit cards compared with your credit limits, they might view you as a risky customer.

Why? Because high balances might signal that you’re experiencing financial problems &, therefore, might make late payments or skip payments altogether.

Your payment history makes up 35% of your credit score. Making late payments or missing payments can harm your payment history & bring down your credit score.

Bottom line

High balances on your credit cards can eat away at both your credit utilization ratio và your payment history. This, in turn, might make it harder to qualify for credit or could stichồng you with higher interest rates if you are able to lớn obtain new credit.