Credit cards, while convenient to use and helpful for building credit, still need to be managed effectively. This article will go into detail about what a credit card balance is and tips for keeping yours under control:
- Definition of credit card balance
- When to pay your credit card balance
- Credit card balance terms to know
Definition of credit card balance
A credit card balance is the amount of credit you've used on your card, which includes charges made, balances transferred and cash advances (like ATM withdrawals). You can think of it as the amount of money owed back to the credit card issuer. If you don't owe a balance, it will appear as zero. If you owe money, it will appear as a positive number. Your balance also includes interest and fees charged.
Where can I find my balance?
Your credit card balance will appear on your monthly statement. You can find your most up-to-date balance by logging in to your credit card company's portal, checking their mobile app or calling customer service. The statement will also show how long it will take to pay the balance off if you only pay the minimum amount each month and the interest you'll accrue.
How is my credit card balance calculated?
Your balance is calculated by looking at your purchases, interest charges, balances that haven't yet been paid, and fees incurred. It will take into account whether you've made recent payments and if you have statement credits (more on this below).
Should I keep a balance on my credit card?
Remember, a balance can affect your credit utilization ratio which is the amount of revolving credit used compared to the amount of credit available. A high balance will take up more of the amount of credit used, which will negatively affect your score. Most issuers like to see a ratio of 30 percent or less.
Maintaining a balance will also result in interest being charged unless you're using a card with a zero percent APR promotion. To avoid interest charges you'll need to pay your bill in full each month.
How else can carrying a balance affect me?
Since a high balance may lower your credit score, this could hurt your ability to secure future credit or lower interest rates on future credit cards and loans.
When to pay your credit card balance
You'll want to pay your full credit card balance after you receive your statement but before the due date. Because credit card issuers typically send reports to the credit bureaus once a month, consistently having a paid bill and a zero balance could make it appear as though you're not using your credit at all. You want to show that you're using your credit responsibly without carrying a balance month-to-month.
Why it's important to keep track of your balance
In addition to maintaining a low credit utilization ratio and avoiding interest charges, keeping track of your balance will help you keep your spending in check. Using credit cards can make it easy to lose track of how much you've spent. Monitoring your balance can help you spend within your budget and avoid accidentally winding up in debt.
Checking your balance regularly can also help you spot suspicious or fraudulent charges on your account.
Three strategies for managing your balance
If your credit card balances are out of control, you'll want to come up with a way to pay them down. Here are three strategies to help you manage and consolidate credit card debt:
- Balance transfer to a credit card with a lower interest rate: A balance transfer allows you to move your balance owed from a high-interest card to a lower-interest card. They often have promotional periods that have low or zero percent APR for a limited amount of time. There are usually balance transfer fees of anywhere from three to five percent.
- Debt consolidation loan: A debt consolidation loan is a personal loan that you can use to pay down credit card debt. A debt consolidation loan helps streamline all of your debt, whether from credit cards or loan payments, into one monthly payment. This can make your payments easier to make and help you pay down your balance.
- Debt snowball method: The debt snowball method focuses on paying off credit card debt from the lowest to highest. You'll make minimum payments on all of your balances except for the lowest one — for that account, you'll pay down as much as you possibly can. Once that's paid off, you'll attack the second smallest balance payment. Repeat until your balances are all paid in full.
Other statement definitions
It's important to understand the terms on your statement so you have a complete understanding of your credit card balance.
The statement balance is the total charges made during the last billing cycle. It won't include any purchases or charges made since the last cycle ended.
Your current balance includes purchases or charges made since the last billing cycle ended.
The minimum payment is the amount you can pay on your statement without incurring late fees. On some cards, your minimum payment amount is a percentage — typically 2 to 5 percent — of your statement balance.
Statement credits are credits that are applied to your balance, such as returned items purchased with your card.
An annual fee is a yearly fee charged by credit card issuers for the use of some of their cards.