What Is a Credit Card Balance?

A credit card balance is the total amount of money you owe to your credit card company. The balance changes based on when and how the card is used.

When you use your credit card to make a purchase, the balance increases. When you make a payment, the balance decreases. Any balance that remains at the end of the billing cycle is carried over to the next month's bill.

Credit card balances are important factors to figure out your credit score. Future creditors look at your balances to determine whether you're worthy to take out additional credit.

Understanding Credit Card Balances

A credit card balance is the total amount of owed to a credit card company. The balance consists of a number of different factors:

  • Purchases
  • Balance transfers
  • Foreign exchange
  • Fees such as late payment charges, returned payment charges, and forex and balance transfer fees
  • Annual fees and cash advance fees
  • Payments

Balances change from month to month based on the activity on the card. If you make only the minimum payment, the remaining balance moves over into the next billing cycle. You incur interest on the remaining balance, which is reflected on your next statement.

The new credit card balance generally updates anywhere between 24 and 72 hours to update once payment is processed. The length of time depends on the credit card company and how the payment was made.

Credit Card Balance vs. Statement Balance

Your credit card balance is what you owe today. This is different than your statement balance. The statement balance is what is reflected in the statement. This figure is what is calculated at the end of the billing cycle, printed on your bill, and sent to you for payment. You will see this noted as the new balance on the statement.

For credit cards, you can pay this amount or the minimum payment that is listed on the statement to keep your account in good standing. The statement balance does not include any charges incurred or payments made on the credit card after the statement was printed.

Key Takeaways

  • A credit card balance is the total amount of money you owe to your credit card company. 
  • The balance increases on a credit card when purchases are made and decreases when payments are made.
  • Credit card balances can increase your credit utilization which can decrease your credit score.

Special Considerations

Paying Down Your Credit Card Balance

A zero credit card balance is the best approach to manage credit effectively. A zero balance also helps avoid the high interest rates associated with a positive balance. If there is a positive balance, paying more than the minimum monthly payment pays it down quicker, resulting in less interest owed to the credit card company.

But sometimes, it's just not that simple. You may find yourself in a situation where you can just make the minimum. If you make the minimum payment, it will take time to pay off the balance, but it will keep your credit score in check.

The key to paying down a credit card balance is to determine the report date—the date an account is reported to the credit reporting agency and pay the bill prior to the report date or statement closing date, which increases a credit score.

Credit Card Balances and Credit Scores

Carrying a credit card balance generally isn't a good idea. That's because it can affect your credit score. Carrying a balance on your card increases your credit utilization which counts as 30% of your credit score. Your utilization should ideally be 20% or less.

If you have a credit limit of $5,000 and keep a balance of $4,000 on your credit card, your credit utilization is 80%, which is extremely high. This tells creditors and lenders you aren't responsible with credit and you become a high risk of defaulting on a future loan or credit card payment. A low credit utilization proves to creditors and lenders that a cardholder is able to manage credit responsibly.

[Important: Talk to your credit card company to increase your limit, as this will decrease your credit utilization.]

Maintaining a high credit card balance can lead to disaster. If an unexpected emergency arises, a high balance reduces your ability to use a credit card. It also increases the chance of increasing your debt load, using risky financial products or paying late fees.