What is a New Balance
New balance describes the amount that a credit card holder owes on their card at the end of the billing cycle. The new balance is the sum of the previous balance, payments, other credits, purchases, balance transfers, cash advances, fees and interest. The new balance appears in the summary of account activity on the monthly credit card statement.
Credit card statements clearly state the new balance in its own line. The statement also indicate the cardholder's minimum required monthly payment, the payment due date, and any fees for late payment.
BREAKING DOWN New Balance
The new balance represents a summary of all of activity on the card for the previous month. The cardholder needs to check the new balance to make sure that it is accurate by reviewing the list of transactions enclosed in the monthly statement.
The list of transactions should include each individual purchase that contributes to the new balance. If there are any fraudulent charges, the cardholder should contact the card’s issuer immediately to have those charges removed. The issuer will likely cancel the card and issue a new one, given the card's compromised security.
If there are any incorrect charges on the statement, cardholders need to first contact the merchant associated with the charges to get them corrected. If that does not work, or if the merchant is not responsible for the error, the cardholder needs to contact the credit card issuer.
How a New Balance is Calculated
If a consumer’s previous statement balance was $1,000, and in the past month they made a payment toward that balance of $500, they still carry a balance of $500 into the next cycle. In this example, carrying that balance costs the cardholder some interest, bringing their total balance to $530. If during that month they also made $250 worth of purchases on that credit card, this brings the new balance to $780. If the cardholder pays the $780 by the payment due date, they will not be charged any interest or fees on their next statement.
Interest payments for credit cards are based on the card’s annual percentage rate (APR). However, a card’s APR is not the exact amount by which a cardholder’s balance rises each month. For example, if a card has an APR of 16 percent and the cardholder carries a balance of $100 at the end of the month, this does not mean that their new balance will be $116. Instead, the issuer calculates the interest due based on both the APR and the days for which the cardholder carried a balance. For a thorough explanation of how the issuer calculates interest, the cardholder agreement spells out these details.