Your monthly credit card statement shows you all the charges you’ve made for the month, which is necessary for paying your bill and knowing the amount you owe.
However, to know the total balance for the billing cycle, it is important to focus on the statement balance.
What is a Statement Balance?
The statement balance is the amount you owe on your credit card at the end of each billing cycle. This amount is calculated to include any fees and interest charges for the month or whatever time period the credit card issuer uses.
This balance differs from the current balance in that the current balance is the total amount of money you currently owe on your card, including any money still owed from your last statement balance and additional credit card charges made after the billing cycle.
Hence, the statement balance and the current balance may be the same, or one balance may be higher than the other, depending on when you made your credit card purchases.
For instance, say you made a charge at the very end of your billing cycle; the charge may not show up until your next billing statement balance because it will still be pending when your current billing cycle ends.
However, once the charge posts to your account, it will be reflected in your current balance, which means your current balance will be higher than your statement balance.
Why the Statement Balance is Important
It Helps you Pay Pay Your Balance in Full to Avoid Interest Charges
Your statement balance will also provide you with a minimum payment and payment due date.
Provided you make at least your minimum payment by the due date, your account will be in good standing, and it will also be reported to the credit bureaus.
However, to avoid interest charges on any balances, you’ll need to pay the entire statement balance before the end of the grace period, which is the time between the statement date and your payment due date.
It Affects Your Credit Score
Credit card issuers typically report your statement balance to credit bureaus monthly. This balance is then used by other credit card issuers and lenders to gauge your credit utilization rate, which shows the percentage of total credit you are using per account. To arrive at the credit utilization rate, you simply divide your total balance by your total credit limit.
In general, the higher your balance, the higher your credit utilization rate, which can lower your credit score and vice versa. To maintain a low credit utilization rate, simply reduce your spending and continue to make payments to bring the statement balance down. Or you could also make periodic payments throughout the billing cycle, which will also help lower your statement balance.
In the end, provided you understand the difference between current balance vs statement balance, it can help you stay on top of your credit card debt and your credit score.
In the meantime, according to the experts at SoFi Invest, “while you’re making at least the minimum payments on all your cards, you might want to pick one that you haven’t paid off-to focus on first, ” which will help you eliminate high credit card balances and make it easier to better manage your debt.
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