If you use your credit card for day-to-day purchases, there’s a good chance that your statement balance will be different from your current balance. Here’s why.
Your statement balance is a snapshot of all the expenses and payments that were made on your account during one billing cycle. Once your statement balance is generated, it won’t change until your next billing cycle closes — but that doesn’t mean your total outstanding credit card balance won’t change in the meantime.
That’s because your current balance reflects the current total of all charges and payments to your account — and that changes every time a transaction occurs. So if you’ve made a few purchases since your statement closing date (the date that one billing cycle closes and after which the next begins), then your current balance will be higher than your statement balance.
On the other hand, if you’ve made a payment since your statement closing date and no other transactions have occurred, then your current balance will likely be lower than your statement balance.
Let’s say, for example, that you receive a credit card statement on 20 June and it says you owe £1,000. That’s your statement balance and 20 June is your statement closing date.
Let’s say you then go out to eat with family after 20 June and spend £100 on the same card. Your current balance will then be £1,100.
If you make a payment of £500, your current balance will be £600. If you don’t buy anything else with the card or make any other payments, your statement balance will come through as £600 on 20 July.
Paying your statement balance in full before or by its due date can help you save money on interest charges. And paying your current balance in full by its deadline can improve your credit utilisation ratio and your credit health.
Pay off your statement balance to avoid interest charges
Generally, as long as you consistently pay off your statement balance in full by its due date each billing cycle, you’ll avoid having to pay interest charges on your credit card bill. This is why you should strive to pay off each billing cycle’s statement balance by the due date whenever possible.
But life happens. If you can’t afford to pay off your entire credit card statement balance by the due date, make at least your minimum payment. This will cause you to accrue interest, but making at least your minimum payment on time will help you avoid late fees and negative marks on your credit reports.
Many credit card providers offer grace periods before you have to pay interest, but you shouldn’t rely on it.
Many credit card providers in the UK offer grace periods between 15 to 21 days before applying interest to your statement balance.
That means you get a little extra time after you receive your statement to pay off the statement balance before the provider will charge you interest.
Using automatic payments to avoid interest charges
The advent of online billing and payment options has made it possible for many credit card providers to offer direct debit to their customers.
Check with your credit card provider to see if direct debit is available. If so, you can usually choose to set up a direct debit that pays just the minimum amount each month — or pays whatever the total statement balance is each month.
Direct debit could help you stay on top of your bills and avoid late payments and interest charges on your purchases. It’s also a good idea to set a reminder on your calendar a few days before your payment date to make sure there are enough funds in your bank account to process the payment.
Exceptions
Some transactions, like cash advances, do not fall under the same “grace period” rules that typically apply to purchases. Instead, they begin accruing interest the moment you take one out.
So if you’ve recently taken out a cash advance on your credit card, we suggest paying it off as soon as possible, regardless of whether you’ve received your statement yet.
How your current balance affects credit utilisation rate
Depending on how your credit card provider reports your account balances to the consumer credit reporting agencies, your current balance could affect your credit utilisation ratio.
Your credit utilisation rate is simply how much of your available credit you’re using at any given time. So the higher your balances are, the higher your credit utilisation rate will be — which can negatively affect your credit score.
If you’re ever worried about your credit utilisation rate being too high, aim to pay down your current balance whenever possible. A good goal is a current balance below 25% of your total credit limit.
Bottom line
When it comes to the question of whether you should pay your credit card statement balance or current balance each month, it really boils down to personal preference and financial goals.
If you choose to pay off your statement balance by the due date each month, that’s a great choice. And if you choose to pay off your total current balance, that’s a great choice, too!
With either choice, you’ll avoid the interest charges that come with only making minimum payments on your credit card purchases. Plus, you’ll drive down your credit utilisation ratio, which may help your credit health. The fact that you’re asking the question at all is great news, because it shows that you’re someone who takes credit seriously.