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When you receive your credit card bill, you'll notice two different balances: the statement balance and the current balance.
Conventional wisdom says that you should always pay off your statement balance within your grace period to avoid paying interest, but in contrast, we hear very little about the current balance.
But if your goal is to understand your billing cycle better and learn more about how your credit utilization rate affects your credit score, it's helpful to break down exactly how the two amounts are different.
Below, Select reviews the differences between your statement balance and current balance and how both balances affect interest charges and your credit score.
Before we dive into your statement balance and current balance, you'll need to understand what a billing cycle is, since both balances relate to it. A billing cycle is the length of time, typically 28 to 31 days, between your last statement closing date and the next.
Your statement balance is made up of all the charges you've made that have gone from "pending" to "posted" by the day your billing cycle ends. On the other hand, your current balance is the total amount of money you currently owe on your credit card, including your previous statement balance and any charges made thereafter.
So if you swiped your card on the last day of your billing cycle, the charge may still be pending when your billing cycle ends, and it would be rolled into the statement balance for the next billing cycle. Once the transaction posts to your account, you would see it reflected in your current balance, but not in your previous statement balance.
You can find both balances when you log in to your online account. Your statement balance will also be printed on your monthly credit card statement.
These two balances may be the same or one may be higher than the other, depending on the purchases you make.
For example, let's say you spent $500 during a billing cycle, then another $50 after your cycle ends. When you receive your credit card statement, your statement balance will be listed as $500. And if you check your online account, your current balance will be $550. In this case, your current balance ($550) is higher than your statement balance ($500).
Then, if you make a $500 payment, your statement balance would be paid off, leaving you with a $50 current balance. As long as you paid off your previous statement balance in full, you won't be charged interest for the amount that remains — but you will need to pay it by your next due date.
In order to have your account reported as current to the credit bureaus (Experian, Equifax and TransUnion) and avoid late fees, you'll need to make at least the minimum payment on your account. But in order to avoid interest charges, you'll need to pay your statement balance in full.
If you pay less than the statement balance, your account will still be in good standing, but you will incur interest charges. You can avoid paying interest temporarily with an intro 0% APR card, like the Wells Fargo Active CashSM Card or the Citi Simplicity® Card.
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Whether you pay the statement balance off in full or only pay the minimum, you can set up autopay to ensure you don't miss a payment or hurt your credit score, which we discuss next.
Credit card issuers typically report your statement balance to the credit bureaus monthly, but if you have multiple cards with different issuers, you'll likely have credit card balances reported at various times throughout the month. While most card issuers report your statement balance instead of your current balance, you should double check by calling or messaging your card issuer about which balance they report.
The balance that's reported to the credit bureaus appears on your credit report and can affect your credit utilization rate, which is the percentage of your total credit you're using. The higher your balance, the higher your credit utilization rate, which can lower your credit score.
To find your credit utilization rate, divide your total balance by your total credit limit. For example, if you have one credit card with a $1,000 balance and $5,000 credit limit, your utilization would be 20%.
Here's the math: $1,000 / $5,000 = 0.2 x 100 = 20%
In order to maintain a low credit utilization rate, consider reducing your spending or making periodic bill payments throughout your billing cycle so you have a lower statement balance. The lower your statement balance, the lower your credit utilization rate, which can improve your credit score.
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