If you log into your credit card’s online account, you’ll probably notice a few options when making a payment. This may vary by credit card company, but you typically have an option to pay off your statement balance, pay off your current balance, make a minimum payment, or make a custom payment.
Most of the options make sense. But what’s the difference between paying your statement balance vs. current balance? And does it matter?
Here we’ll explain the differences between the two and how they can both affect your credit score. This will help you better understand how to manage your credit cards and keep your credit score in tip-top shape.
What is a statement balance on a credit card?
Your credit card statement balance is the balance on your credit cards during a specific billing cycle. So if your card’s billing cycle runs for 30 days, your statement balance includes all activity on your card during those 30 days. Once a billing cycle ends, you’re given a statement balance that reflects all your card account’s charges, credits, fees, and interest during the billing cycle. Then a new billing cycle begins, and you’ll receive a new statement balance at the end of that billing cycle.
An easy way to see the billing cycle on your credit card is to look at a previous credit card statement. Your monthly statement will give you the opening and closing dates of your billing cycle. These dates typically fall on the same days every month so it’s easy to keep track of them. Your online credit card account should automatically show you how much you owe on your statement balance. But looking at a credit card statement can help you see every transaction made during the billing cycle that makes up your statement balance.
Paying your full statement balance is important for multiple reasons. If you don’t pay the total amount of your balance, it might start accruing interest. In addition, having a high balance can negatively impact your credit score.
If your credit utilization ratio — the amount of credit you’re using out of your total available credit limit — is too high, typically above 30%, your credit score is likely to decrease. And missed payments or late payments could show up on your credit report for years to come.
Your credit card company will typically report your activity to the major credit bureaus, such as Experian, Equifax, and TransUnion, at the end of each billing cycle when your statement balance is generated. So it’s best to pay off your statement balance before your credit card company reports to the credit bureaus. However, the timing of these reports varies by credit card company, so it might not always be the same if you have cards from multiple issuers.
What is a current balance on a credit card?
Your current balance is basically an updated balance of everything you currently owe on your credit card. In other words, it’s your credit card’s total balance. This could include a combination of your most recent statement balance and any additional transactions, such as new charges made on your credit card since the close of your last billing cycle.
This is different from a statement balance because your statement balance reflects only transactions made during a specific billing cycle. A new statement balance begins after the previous statement’s closing date. To find either type of balance, cardholders can typically check their credit card’s online account.
If you already pay your statement balance in full each month, paying your current balance in full isn’t necessary to avoid interest charges or to keep your credit utilization low. However, paying your current balance can make it easier for you to pay everything you owe instead of waiting for the statement balance each billing cycle. It will also accomplish the same goal of keeping your credit account in good standing on your credit report and maintaining or improving a good credit score.
If you don’t pay your statement balance or current balance in full each month, you risk accruing interest, missing payments, and having a high credit utilization. Paying interest doesn’t typically affect your credit score, but it’s not helpful for saving money and can make it more difficult to pay your balance on time. Late or missed payments and high credit utilization typically have a negative impact on your credit score.
Keep in mind that many credit card companies offer a grace period to help make your credit card payments. This typically starts when your statement balance is generated and ends the day your balance is due. Interest won’t start accruing until after the grace period is over.
Why it pays to set up autopay on your credit card
To help avoid late or missed payments and easily manage your credit cards, consider setting up autopay. An automatic payments feature is typically available from most banks and can be set up in your online account through a web browser or mobile app. This feature lets you automatically make a payment to your credit card from a linked bank account on or before your payment due date.
You’re typically able to select between multiple payment amounts, including your statement balance, minimum amount due, or a custom amount. Certain banks may also allow you to choose the date you want the automatic payment to occur each month. This can be helpful if you time the autopay date with your paycheck date so you know your bank account will have the necessary funds to make the payment.
If your income fluctuates from month to month, you might set autopay to make the minimum payment each month. This will ensure you don’t miss a payment, make any late payments, or get any late fees. But keep in mind that paying only the minimum amount due will still leave your balance open to be charged interest. You would then have to pay that interest during the next billing cycle, as well as the rest of the unpaid balance.
Should you pay your current balance or statement balance?
It doesn’t matter whether you pay your current balance or statement balance in full each month as long as you’re paying off one of them. Your statement balance is typically what’s reported to credit bureaus by your credit card company, so it’s important to pay it off each month. But because your current balance includes your statement balance, it’s fine to pay off either balance.
Paying either your current balance or statement balance in full each month will help you avoid accruing credit card interest that potentially impacts your credit score negatively. If you pay off your balance in full each month, you won’t have any late or missed payments and your credit utilization will be lower.
Is current balance what you owe?
Current balance is what you currently owe on your credit card. It doesn’t include pending charges or credits, but it does include your most recent statement balance and any other charges, fees, credits, and interest that have been processed since the close of your previous billing cycle.
Is it a good idea to pay your credit card bills more than once a month?
It’s a good idea to pay off as much of your credit card debt as possible each month. If you need to make multiple payments each month to accomplish this, then it’s a great idea. Keep in mind that the number of payments you make each month won’t affect your credit score or whether your credit card balance accrues interest.
Rather, it’s more about how much of your debt you pay off each month, whether your payments are on time, and if your payments are made before your credit card issuer reports to the credit bureaus. Paying your balance in full and on time every month will help you avoid interest, keep your credit utilization low, and steer you clear of late or missed payments.
The bottom line
No matter which type of credit card fits your financial situation, it’s important to have a solid understanding of how they work. It may not matter which balance you pay off each month, but it does help to know that paying your balance in full each month is important for avoiding interest and improving your credit.
If you like earning cash back on everyday purchases, you don’t want to accrue interest on your balance and negate the cash back you’re earning. In addition, if you can avoid missing payments or making late payments, your credit score can improve and you can qualify for better credit products. See our picks for the best cash back credit cards here.
The same principles apply to travel credit cards. If you want to supplement your travel experiences with credit card rewards, it’s best to pay your balance off in full and on time each month. See our picks for the best travel credit cards here.
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