What Is a Credit Card Balance?

A credit card balance is the total amount of money that 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 in calculating a person’s credit score. Future creditors look at your balances to determine the risk (and cost) of granting you additional credit.

Key Takeaways

  • A credit card balance is the total amount of money that you owe on your credit card. 
  • 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 ratio, which can decrease your credit score.

Understanding Credit Card Balances

A credit card balance is the total amount of money that you owe to the credit card company. The balance factors in:

  • 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, then the remaining balance rolls over into the next billing cycle. You incur interest on that remaining balance, which is reflected on your next statement.

The new credit card balance generally takes anywhere from 24 to 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, also called your current balance, is the total that you owe today. This is different from your statement balance. The statement balance is what is reflected in the statement. This figure is calculated at the end of the monthly billing cycle (up to the closing date) and printed on your bill. You will see this noted as the new balance on the statement.

To keep your credit card in good standing, you can pay this amount or the minimum payment that is listed on the statement. If you pay off the statement balance each month, then you’ll avoid paying interest on your purchases. (Be aware that interest on cash advances is treated differently—it starts to accrue on the day of the transaction.) The statement balance does not include any charges incurred or payments made on the credit card after the statement closing date.

Special Considerations

Paying down your credit card balance

Bringing your credit card balance back to zero each month is the best approach to managing credit effectively. A zero balance helps avoid the high interest charges associated with maintaining a positive balance. If there is a positive balance, then paying more than the minimum monthly payment pays it down more quickly, 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 only make the minimum payment. If you do that, then it will take time to pay off the balance but will help keep your credit score intact.

The key to paying down a credit card balance is to determine the report date—the date when an account is reported to the credit reporting agency. To improve your credit score, pay the bill before the report date or statement closing date. If you’re having trouble fully paying off your credit card balance each month, then it may be worth switching to one of the best balance transfer credit cards to secure a lower interest rate.

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 factors into your credit utilization ratio, which comprises 30% of your credit score. Ideally, your utilization should be 20% or less of available credit.

To improve your credit score, consider talking to your credit card company to increase your credit limit, as this will decrease your credit utilization ratio.

If you have a credit limit of $5,000 and keep a balance of $4,000 on your credit card, then your credit utilization is 80%, which is extremely high. This tells creditors and lenders that you aren’t responsible with credit, and they will judge you to be at high risk for defaulting on a future loan or credit card payment. Low credit utilization proves to creditors and lenders that a cardholder is able to manage credit responsibly.

Credit card balances can affect your credit score another way. If mounting balances make it hard to pay your bills on time each month, then late payments will damage your score, since payment history accounts for 35% of your credit score calculation.

Maintaining a high credit card balance can make you financially vulnerable in other ways, too. If an unexpected emergency arises, then a high balance reduces your ability to use a credit card to help you out. It also increases the chance that you’ll accumulate too big of a debt load and have to pay late fees or resort to risky financial products, like payday loans.