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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
15 SEPTEMBER, 2022
Credit cards are no longer a luxury but a necessity. At times, they are a blessing to meet urgent or upfront financial obligations. They offer customers the freedom to pay utility and medical bills, submit tuition fees, shop, book tickets, and more along with exciting offers and discounts.
However, the concept of buying now and paying later requires careful management to avoid interest and penalties and hurting your credit score. It’s better to be familiar with the importance of technical terms like credit card statement balance, balance statement, credit card current balance, etc. than be sorry later.
Sometimes, card users aren’t familiar with the difference between current balance and available balance and miscalculate their spending limits. Let’s decode some of the credit card terminologies to ensure you have a smooth experience with credit cards.
Introduction to Credit Card Balances
Most of us are familiar with the concepts associated with debit cards. However, a credit card serves a different purpose from a debit card. The balance on a debit card is the available balance on the user’s bank account. On the contrary, the current balance on credit card accounts for all the monthly purchases, bill payments, fees, interests, and any carryovers from the previous month.
In simple words, the current balance meaning is the amount that you are liable to pay to the issuer at the end of that month. A credit card is used to borrow money, and the balances are related to the available borrowing limit. The credit card bill is forwarded to the user at the end of the billing cycle. You must understand the concept of the billing cycle to avoid high late charges.
A billing cycle is the time lapse between the last and the current billing date. It varies between 28 to 31 days depending upon the month and the year. As long as you pay your last statement balance in credit card, you wouldn’t be charged any interest fee. However, the longer you take to clear your bills, the higher interest charges you will have to pay.
You should note that the billing cycle can start from any day of the month depending upon your application and approval dates. The start and end of the billing cycle are independent of the calendar months.
Credit card users can check their outstanding balances through their bank account statements. All card issuers also provide easy access to online portals for checking the card balance at your fingertips.
What is Credit Card Statement Balance?
A credit card statement balance refers to the total money you owe to your card provider on the last day of your billing cycle. A balance statement will consist of all transactions and purchases made throughout the billing cycle till the last day. Apart from the current billing cycle, the card statement balance will also include pending statement balances (if any) from the previous billing cycle. It also notifies the minimum due amount to the user. Generally, it tells how much a user owes at the end of the month to the card issuer.
The statement balance is updated only at the end of the billing cycle. Once updated, the statement balance remains the same throughout the billing cycle as opposed to your current balance. Always keep in mind that a credit card statement balance notifies you about all the past purchases/transactions and not your current obligations. Your total obligations may be greater than reflected in the statement balance.
A credit card statement at the end of each billing cycle comes in handy to analyze discrepancies if any. The card statement balance includes all the payments and swipes made via the credit card. If you have doubts about any unauthorized payments made from your card, you can crosscheck them with your statement. You can contact the customer care of the issuing bank to clarify the charges.
What is Credit Card Current Balance?
A credit card current balance tells you the amount you owe to your card issue at this particular moment. It is independent of your billing cycle as well as whether you have cleared your previous month’s dues or not. To put it simply, it is a real-time measure of your debt to the company.
The current balance on your credit card keeps on changing with every transaction you make. It is a good practice to always keep your maximum debt limit in mind while using your credit card. If your credit card bill exceeds the limit, your issuer can deny further transactions until some of the amounts are paid to the issuer.
For example, suppose you spent INR 20,000 in a billing cycle of 30 days. On the 31st day, the card statement balance will be updated to INR 20,000. Suppose the user pays INR 4,000 as the minimum due amount. For the next 30 days, the statement balance will remain the same i.e., Rs. 20000/-. Meanwhile, you purchase a smartphone costing you approximately Rs. 10000. Now, your current balance will reflect Rs. 30000/- while your statement balance will remain at Rs. 20000/- until you pay your outstanding bill.
Credit Card Statement Balance vs Credit Card Current Balance
As a vigilant user, you should be aware of the difference between statement balance and current balance to manage your payment efficiently. You can avoid late fees and massive interest charges once you know how to prioritize between the two.
The credit card statement balance is the static obligation updated only at the end of the billing cycle. In contrast, the current balance is dynamic and changes with each transaction, swipe, or purchase.
After the statement balance is generated, it doesn’t usually change until the next billing cycle, even if the dues are cleared. Therefore, with every transaction, the current balance exceeds the statement balance. The latter can only exceed the former in case of a refund.
Also Read: How to Pay Your House Rent Using Your Credit Card?
How do your Balances Affect Credit Score?
Whether it is a current balance or a statement balance, both reflect the overhead debt. While there are options of paying a minimum due each month and carrying the remaining amount to the next billing cycle, it may eventually hurt your credit score. Let us understand how the circle of mounting debt works.
Card statement balance and current balance will increase after non-payment or partly paid credit card bills. Additionally, interest charges will start to add to the unpaid balances. The interest charges and the outstanding amounts can put the cardholder can be in serious debt in a short period.
Non-payment of card bills and compounding outstanding bills minimizes the credit score considerably. A lower credit score, in turn, can affect future credit card applications or loans. In extreme cases, the issuer can announce you as a defaulter, blacklisting you from all future applications.
Therefore, it is advised to deposit credit card bills timely and keep the current balance under check. At the end of every billing cycle, try to pay all or at least more than just the minimum/mandatory due amount. This way, you can keep your credit card current balance and statement balance to a minimum.
Further, your statement balance and current balance determine your credit utilization ratio. It is the total outstanding amount due to you on all the credit cards divided by the total credit limit available to you. The lower the credit utilization ratio, the better chances you hold for future loans if you require so.
If you have any confusion regarding repayments, you can always reach out to the issuer and raise a query. To maintain a good credit score you should do regular credit card balance checks. Also, budgeting within your means can help you avoid bad debts.
FAQs on Credit Card Statement Balance vs Current Balance
Q1. Should I pay the statement balance or the current balance?
A. You should prefer to clear your statement balance to avoid any interest incurred as late payment charges before you plan to pay the current balance. Paying the statement balance ensures no carryovers to the next month which is preferred. Paying the current balance brings your outstanding amount to zero which is good but not mandatory.
Q2. What is the difference between current balance and available balance?
A. Your current balance is the total liability on all the transactions till the previous business day while your available balance accounts for all the unposted transactions also. The current balance tells the theoretical spending limit while the available balance tells the real-time limit. You can only spend up to your available balance in case it is lower than your current balance.
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