Credit Card Balance

Updated February 5, 2021

What Is a Credit Card Balance?

A credit card balance is the total amount of money owed on a credit card account. Whenever a purchase is made, the balance increases. Conversely, whenever a payment is made, the balance decreases.

The total amount of the balance reflects purchases, interest, finance charges, and late fees as well as any annual fees. Unpaid balances that remain at the end of a monthly billing cycle will roll over to the next month’s period.

How Does a Credit Card Balance Work and How Is It Calculated?

When the card holder makes a purchase using a credit card, the amount is added to the credit card balance. The balance will increase with each purchase made by the card holder.

If applicable, interest will accrue based on the stated rate in the cardholder agreement and be charged along with finance charges at the close of the billing cycle. The cardholder will then be billed for the amount owed and can choose to pay off the entire balance owed, pay the balance owed for that particular billing cycle, or make just the minimum payment.

If the cardholder does not pay the full balance, interest will continue to accrue on the unpaid amount, and both the interest and the unpaid charges will remain in the credit card balance. 

In addition, some credit cards have a grace period which affects how a credit card balance is calculated. A grace period is a duration of time, typically around 10 days, during which a past due amount can be paid with little or no penalty fees. 

Does a Credit Card Balance Affect a Credit Rating?

The size of a credit card balance can and does affect a borrower’s credit score because it determines the borrower’s credit utilization rate. The credit utilization rate looks at how much of the available credit a borrower has used. Credit utilization contributes 30% to a consumer’s credit score. A higher percentage of credit utilization will result in a lower credit score.

Creditors and potential creditors prefer to see a utilization percentage of 20% or less, because potential lenders look for borrowers who can easily pay off balances, and not carry them over from month to month or max out their credit limit. This demonstrates that the consumer is responsible with credit and is a reasonable risk to extend credit to.



Difference Between Credit Card Balance and Statement Balance

The statement balance reflects the total amount owed on the statement date. The statement balance is the credit card account balance on a specific date, i.e., the end of the billing cycle, whereas the credit card balance reflects a rolling balance of activity.

For example, if the cardholder makes a purchase just after the billing cycle has ended, that amount will not be included in the statement balance but will be included in the credit card balance. So the credit card balance differs from the actual statement balance, which is calculated on the statement date, as it includes charges and payments made since the statement date.

What Is a Balance Transfer Credit Card?

A balance transfer occurs when a cardholder transfers the balance owed on one credit card to another. Cardholders typically do this to take advantage of a better rate, lower or no annual fees, reward points, or some other type of incentive.

Typically, the introductory rate is good for a limited time. Once the term expires, any remaining amount of the transferred balance will be charged the regular interest rate as stated in the cardmember’s agreement. Usually, this rate is significantly higher than the introductory rate. Any purchases made after the introductory rate period are also charged the regular rate of interest.

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Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years creating professional financial certification exams and another 20 years of college-level teaching.

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