Whenever you check your credit card balance, you will see two balances, the statement balance and the current balance. These balances are different and can cause confusion, especially when you are trying to figure out which balance should be paid first to avoid interest charges and increase credit utilization.
Statement balance and current balance: what is the difference?
Your statement balance is the amount you owe your credit card at the end of the previous billing cycle. The current balance is the total amount you owe on your credit card account to date.
How to determine your statement balance?
Your statement balance includes all transactions made during the previous billing cycle and previous unpaid balances (if any). The billing cycle can be 20-45 days, and the billing cycle varies from bank to bank. According to the CARD Act of 2009, you have 21 days to pay off your statement balance from the date the credit card company issues your statement. Some companies provide you with a grace period, if you have paid your statement balance in full during this period, you do not need to pay any interest.
Statement balance and current balance: Which one should you pay to avoid interest?
You need to pay the balance of the statement in full before the due date to avoid interest charges and current balance to improve credit utilization.
•Pay the statement balance to avoid interest charges
You can avoid increased interest charges by paying off your statement balance in full on the due date of each billing cycle. If you are unable to repay the credit card statement balance in full, you must strive to pay at least the minimum amount. This will help avoid negative effects on credit reports and late fees.
Some credit card providers may provide customers with a grace period of 21 days from the date of mailing or providing the balance of the statement. The grace period will allow you to pay off your balance without additional interest rates.
•Use automatic payments to avoid interest charges
Most credit card providers offer their customers automatic payment options. If there is an automatic transfer option, you can choose “Balance”. This will ensure that your statement balance is paid on the due date and help you avoid late payments and interest payments. Remember to check if you have enough funds in your account to process the payment.
How your credit card balance affects your credit score
At the end of the billing cycle, the bank will usually report your credit card balance to the credit bureau. Some banks report on the first day of each month, while others report on the last day of each month. Your credit report shows your credibility, which depends on several factors that determine the FICO score. The higher your credit score, the better.
What determines your credit score
There are several factors that determine your credit score:
•Payment History-35% of your credit score is based on your payment history. This is why it is important to pay credit card bills in a timely manner. Skipping payments will affect your credit history. •Utilization rate-It accounts for 30% of your credit score. It is recommended to use a 10% credit limit. •Length of history-The time you open an account is 15% of your total score. The longer you open an account with a good reputation, the stronger your reputation. It’s even better if you have multiple open accounts. •Credit Portfolio-The combination of credit card, retail account and installment loan accounts for 10% of the total score. It is best to open various types of accounts and maintain a good reputation. •New Credit-The number of credit cards you open account for 10% of your credit score. If you open multiple accounts in a short period of time, it will have a negative impact on your credit score due to difficult queries. However, your score will be restored after paying monthly on time.
How does your current balance affect the credit utilization rate
Your current balance may affect your credit utilization, depending on how your credit card provider reports your account balance to the credit bureau. Generally, the credit utilization rate is the amount of available credit you are using. If you want to increase your credit score, the credit limit used must not exceed 10% of the available credit limit. If you keep your credit usage rate below 7%, your credit score will be greatly improved.
The credit bureau calculates the customer’s credit utilization rate based on the balance they receive from the credit card provider. You can consult your credit card provider to determine if they have sent your statement or current balance to the credit agency and paid off your balance accordingly.
However, this is a good choice to pay off your current balance and statement balance on time to avoid interest charges and bad credit scores.
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