What is a Credit Balance?

A credit card balance is the total amount of money you currently owe on your credit card account. This balance changes based on your account activity. When you make a purchase, your balance increases and conversely, when you make a payment, your credit card balance decreases. However, purchases are nott the only factor that can change your balance. A credit card balance can also include other charges incurred during the billing cycle, such as any cash advances, balance transfer fees, annual fees and late fees. 

If you are unable to pay your bill in full and on time each month, the rest of the balance carries over to the next billing cycle, where you will be charged interest on the portion of the balance you didn’t pay. In this article, we cover how a credit balance is different from a minimum payment or a statement balance, and why credit balances can have large impacts on your financial health.

Credit card balance vs. minimum payment vs. statement balance

While your credit card balance is the total amount you currently owe on your account, when looking at your credit card statement each month, you will also see two other numbers:

• Minimum payment: The amount of money you have to pay to your credit card company by the due date in order to avoid being charged a late fee. 
• Statement balance: Consists of all the charges that were on your credit card at the end of your billing cycle—any balance carried over and any accrued interest. The statement balance does not include any charges incurred or payments made on the credit card after the billing period.

For your most up-to-date account information, including both your credit card balance and statement balance, you can either log into your account online or call your credit card company. 

Why are Credit Balances Important?

Credit card balances are an important factor in determining your credit score, which can have a large impact on your financial health. In general, it is probably not a good idea to carry a credit card balance. If you are able to monitor your purchases and keep your spending in check, you can pay your bill in full and on time to avoid paying interest on your purchases. However, if you are unable to do so, you must pay attention to how much you are spending compared to your credit limit. One of the biggest factors in determining your credit score is the credit utilization ratio, which measures the amount of your overall credit card limit that you are using. It is calculated by dividing your total outstanding balances on all of your cards by your total credit limit. The lower your credit utilization ratio the better, but in general, a good rule of thumb is to keep your credit utilization ratio below 30%. A high credit utilization ratio can lower your credit score as it may make potential lenders worry that you are overextended and may not be able to handle more debt. Accordingly, the bureaus lower your score which effectively reduces the amount of additional credit you’re able to take.

What to do With a High Credit card Balance?

If your credit utilization ratio is above the 30% marker, you must take action immediately to keep your credit score from spiralling out of control. Of course, you can simply increase your credit limit, but if this option is not available to you, here are two options:

1. Look to transfer or refinance existing debts: Being unable to pay off debts due to high-interest payments, can have large negative impacts on your credit score. However, by refinancing your loans you can have lower monthly payments helping you earn a stronger credit score. Make sure to check any and all terms, as depending on the additional refinancing costs and the length of the loan, refinancing can have adverse consequences.
2. Consolidate your debt: Consolidating your debt can also be a good strategy if you are having trouble with monthly payments and are accumulating a large debt. Under this plan, you combine all of your outstanding debts into one monthly payment. The goal behind consolidation is to reduce the interest you owe, and as a result lower your payments, so you can begin making those payments on time and begin to save money, and in turn boost your credit score. If you are dealing with student loan debt, you will have to consider either consolidation or refinancing.

Conclusion

A credit card balance on your billing statement is simply the total amount of money you owe the credit card company at any given time. Importantly, this is different from the statement balance, which is the amount of money you owe at the end of a billing cycle, or the minimum payment you must make to keep your account in good standing. A high credit card balance can negatively impact your credit score, by raising your credit utilization ratio. If this is the case, make a plan to pay down your credit card debt as quickly as possible by considering a balance transfer card or consolidating your debt.