Your credit card statement can feel like information overload with all of its numbers and terminology. Understanding the definition of terms like outstanding balance, statement balance, and billing cycle can help you to navigate this monthly statement a little more easily.
So what is an outstanding balance, how is it different from a statement balance, and can it affect your credit score? Put simply, the outstanding balance on a credit card is what the amount of money you still owe to the credit card company is called. Knowing this figure is important to avoiding interest and potential effects on your credit.
What Is an Outstanding Balance on a Credit Card?
Outstanding balance is another way to express current balance. In fact, depending on your credit card issuer, your monthly statement and mobile app may use the term “current balance” instead of “outstanding balance.”
But what is an outstanding balance in credit card terminology? A credit card outstanding balance is simply the amount of money you have not paid to the credit card issuer — i.e., it’s what you still owe.
Your outstanding balance includes any purchases you have made on your credit card but have not yet paid off (from the current and previous billing cycles), but it also includes:
• Interest earned on previous balances
• Balance transfers (and any balance transfer fees)
• Cash advances
• Any other fees you may owe, like late fees or foreign transaction fees
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Where to Find Your Outstanding Balance on a Credit Card
You can check your outstanding balance by calling your credit card issuer or accessing your account online or through the mobile app. Depending on the terminology the company uses, you may see the outstanding balance listed as your current balance or simply your credit card balance.
Current Balance vs Outstanding Balance
Current balance is simply another term for outstanding balance. Depending on your credit card issuer, you might see one term or the other used. In some cases, it may simply be labeled “account balance” or “credit card balance.”
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Statement Balance vs Outstanding Balance
So what’s the difference between a credit card statement balance and outstanding balance? Your credit card statement balance is the total amount owed after a billing cycle. It can include any purchases made during the billing cycle, plus any balance, interest, and fees carried over from the previous billing cycle.
Once issued, the statement balance amount does not change, even if you continue to swipe your card for more purchases during the grace period (this is the period between statement closing date and due date, during which you won’t earn interest on your unpaid statement balance). As long as you pay off the statement balance in full by the due date, you should not accrue any interest.
Your outstanding balance encompasses everything you owe at a specific moment in time. Sometimes your outstanding balance can be higher than your statement balance; sometimes it may be lower. Consider this example:
Your billing cycle ends, and you now have a statement balance of $1,000. In the next week, you spend $500 more with your credit card. Your statement balance remains $1,000, while your outstanding balance grows to $1,500. But as long as you pay that $1,000 statement balance by the due date, you will not incur any interest — and your statement balance will drop to $0 until the end of the next billing cycle.
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Remaining Balance vs Outstanding Balance
Remaining balance refers to whatever amount is still due after you’ve made your monthly credit card payment. For example, if your statement balance is $500 but you only pay $300, your remaining balance is $200. This, along with the interest it accrues, becomes a part of your outstanding balance.
You can avoid accruing interest on a remaining balance by paying off your statement balance in full each month rather than only the credit card minimum payment.
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What Is an Average Outstanding Balance?
The typical amount of an outstanding balance can vary widely from person to person — it all depends on how much you use your credit card, what your credit limit is, and whether you carry a balance. That being said, your average outstanding balance is simply the amount you owe on a credit card, averaged over a certain period of time.
The average outstanding balance formula for a statement period would be the total of your balance for each day of the statement period, divided by the number of days in the cycle. This can be helpful to know given most credit card issuers calculate interest on a daily basis, based on your average daily account balance.
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Paying Your Credit Card Outstanding Balance: What to Know
The nuances of credit card balances can be tough to nail down, but understanding how they work — particularly outstanding balances — may help you avoid interest and impacts to your credit score.
Here’s the short version:
• Paying the minimum balance due each month will help you avoid late fees and negative marks for late payments on your credit report.
• Paying the statement balance in full by the due date will keep you from accruing interest.
• Paying down the outstanding balance, or current balance, even outside of your normal payment cycle, can reduce your overall credit utilization, which influences your credit score.
How Interest Contributes to Outstanding Balances
When you make purchases with your credit card throughout a billing cycle, the card issuer has lent you money to cover the expenses. And if you don’t pay the lender the statement balance in full by the specified due date, any remaining balance will become part of your outstanding balance — and it will start accruing interest.
The best way to avoid paying credit card interest is to pay your statement balance in full by each due date.
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How an Outstanding Balance Affects Your Credit Score
When you carry over unpaid balances, you’ll do more than earn interest that you have to pay. You’ll also increase your overall credit utilization, which is the amount of your total available credit you’re using. That’s because your outstanding balance counts toward your credit limit.
For example, if your credit limit is $5,000 and your outstanding balance is $2,500, you’ve utilized 50% of your credit limit. In general, creditors prefer to see a credit utilization of 30% or lower. This signals to them that you can responsibly pay back your debts.
In fact, credit utilization is the second most important factor affecting your FICO credit score. It accounts for 30% of your overall credit score. Thus, carrying a high outstanding balance regularly can adversely affect your credit score.
For this reason, experts typically recommend paying off your full statement balance every month if you’re able. And if you make a large payment on your credit card during a billing cycle that increases your outstanding balance tremendously, you may want to pay it off early to reduce your credit utilization — or else you chance a drop in your credit score.
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Credit cards can be confusing, especially when you’re new to the terminology. But once you understand how your statement and outstanding balances work and can responsibly make payments in full and on time, credit cards can be a great tool for boosting your credit score.
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Does outstanding balance mean past due?
Having an outstanding balance does not necessarily mean it’s past due. Your credit card requires a minimum monthly payment; if you have satisfied that payment, you do not need to immediately pay your outstanding balance. But keep in mind that you generally need to pay the full statement balance each month to avoid accruing interest.
How do I clear the outstanding balance on my credit card?
To clear the outstanding balance on a credit card, you can make a payment equal to the amount. This should bring the balance down to zero. However, you do not always have to pay your outstanding, or current, balance to avoid interest. Paying your monthly statement balance in full should keep you from accruing interest, even if your outstanding balance is higher.
Why is my outstanding balance negative?
Your credit card outstanding balance can go negative if you pay off the card and then receive a credit for a returned item or claim cash-back rewards from your purchases. If you want, you can request a check from the credit card issuer in the amount of the negative balance. Or, you can apply the negative balance on a credit card toward future purchases on the credit card.
Photo credit: iStock/SARINYAPINNGAM
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