Statement balance vs minimum payment: What's the difference?

Quick insights

• Paying your statement balance versus the minimum payment each month could have an impact on your credit score and overall financial well-being.
• Regularly making on-time payments for only the minimum amount might not hurt your credit history, but it could have an impact on your credit utilization ratio, credit score, and interest owed.
• Paying your current balance instead of your statement balance can help improve your credit utilization ratio, which might impact your credit score.

If you’re one of the 82% of Americans with at least one credit card – or even if you’re not – you've probably heard your fair share of unsolicited advice about strategies for paying your bills.forbes-credit-card-statistics When it comes to credit card bills, your monthly charges and amounts owed are reflected in a credit card statement. This statement probably offers at least two suggestions for a payment amount – your statement balance and a minimum payment.

Statement balance versus minimum payment

What is the minimum payment versus the statement balance? The minimum payment is the smallest amount you can pay each month without being assessed a late fee. The amount you see is based on a percentage of your total balance, usually 1-4%.

The statement balance, in contrast, is the total amount you spent during the last billing cycle, plus any unpaid balance from previous months. Paying the full statement balance by the due date can help you avoid being charged interest. Cardholders typically have approximately four weeks from the statement close date to make a payment, and new interest charges aren’t applied to any unpaid balance until after that due date.

Please note that your minimum payment typically must reach a certain amount, which can be more than 4% if your total balance is small. For example, your minimum payment will usually be at least $25-35, which would amount to well over 4% of a total balance of, say, $100. If your total balance is lower than $25, your minimum payment will typically be the same as your statement balance.

Minimum payments on your credit card bill

The minimum payment is referred to as a minimum for a reason – failure to pay at least that amount on time can result in late fees and potentially even a hit to your credit score, in addition to the interest charges on your unpaid balance.

It’s recommended to at least pay your minimum payment on time every month. Paying this amount could help maintain your credit score and positive payment history, but it might result in interest charges and might not help to lower your credit utilization ratio. A credit utilization ratio over 30% could also negatively impact your credit score.

Paying the statement balance

Whenever you are financially able to do so, it’s generally recommended to pay your credit card balance in full on or before your payment due date. Doing so can help prevent future interest charges and late fees, might help reduce your credit utilization and debt-to-income ratios, help to maintain a strong payment history, and which could potentially help improve your credit score.

Paying the current balance

Another payment option is to pay off the entire current balance. This amount would be the balance from your prior statement close date and any charges that have been made since the close date. Making this type of payment typically might help improve your credit utilization ratio, while also avoiding interest and late charges, helping to maintain a strong payment history and helping to maintain or potentially improve your credit score.

How much you should pay for your credit card bill

Credit card interest is among the highest of all lending types; as such, it’s generally recommended that you pay off as much as you can afford each month, up to and including your entire balance. However, if you want to avoid interest payments and late fees, it may help to pay at least your statement balance by your payment due date.

Bottom line

As you can see, there are many different recommended times and amounts to pay your credit card bill. While the minimum payment is the least you should pay each month, there may be benefits to paying the statement balance or even the current balance when you can afford to do so. Weighing these considerations with the rest of your budget can be an important step toward positive and sustainable financial planning.