5 Min Read | Updated: August 28, 2023

Originally Published: November 30, 2020

What Is a Credit Card Balance?  

A credit card balance is the total amount of credit that you’ve used on your card. Learn what a credit card balance is and how it’s calculated.

what is a credit card balance

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

At-A-Glance

There are a few different types of credit card balances, including the most well-known, the credit card statement balance.

Certain balances are used to determine your interest charges if you carry a balance, or revolve debt, month to month.

In most cases, it’s best to pay off your balance each month as this could help to reduce interest charges.


Have you ever asked yourself, “What is a credit card balance?” You may think the answer to this question is simple, but understanding exactly what it means can be more complicated. What makes the definition of credit card balance complex is that there a few different things that people could call “credit card balances,” and each one plays a different role in the everyday processes necessary to make your credit card work.

 

Knowing how to interpret and manage this important information can help you maintain better control over your finances and maximize the benefits of having a credit card. In this article, we’ll explore exactly what a credit card balance is and provide a few tips to help you manage it.

 

Types of credit card balances:

 

Here are the different types of credit card balances we’ll cover in this article:

 

  • Credit card statement balance

  • Outstanding balance

  • Average daily balance

  • Revolving balance

Statement Balance

Your statement balance is likely the first to come to mind when you think about your credit card balance. It's the total you owe on the last day of your monthly billing cycle – which usually does not coincide with the end of a calendar month.

 

The statement balance is listed on your monthly statement. It is a picture of all your credit card purchases, credits, payments, cash advances – if any – and transferred balances – if any – listed one by one as you made them for an entire billing period.

Outstanding Balance

Your outstanding balance is the total amount you currently owe to your card issuer. This typically includes purchases, interest charges, and fees, along with fees and charges for balance transfers and cash advances.1 You can typically find your outstanding balance on your credit card statement.

Daily Balance

This is the picture of your outstanding credit card balance at the end of each day.2 This will typically include any new purchases you’ve made throughout the day and any interest, fees, or other charges that have been applied to your account.

Average Daily Balance

Average daily balance calculations vary, depending on the credit card company. However, you can typically find your average daily balance for a month by adding up the daily balances in the month and dividing it by the number of days in the billing cycle.3

Revolving Balance

If you don’t pay your entire statement balance by the due date, finance industry professionals say you revolve the unpaid portion. That’s your revolving balance – essentially, a loan. As with any loan, you’ll pay interest, as explained below. About half (47%) of actively used credit card accounts carry a revolving balance, according to a 2022 survey from the Consumer Financial Protection Bureau (CFPB).4

How Much Should You Leave on Your Credit Card Balance?

You may have heard that carrying a revolving balance helps your credit score by demonstrating your ability to manage debt responsibly. But this is a costly mistake: When you revolve a balance, you are taking out a loan, and now you must pay interest.

 

While your ability to manage debt responsibly is among the most important factors in determining your credit score, you demonstrate that simply by having a credit line and paying your bills on time.

 

How much of your available balance should you use? That depends on a few factors including your financing requirements. It’ll also depend on how many credit cards you have, their balances, and your total available credit limit, that is, how much credit you have available across all of the cards. The percentage of your total available credit that you’ve used is known as your credit utilization ratio, and it’s a good idea to keep this at 30% of your available credit limit. Going too high could negatively impact your credit score.

Calculating Interest Using Your Average Daily Balance

Here’s how credit card interest is usually calculated if you revolve a balance:

 

  • Your ADB is determined from your prior statement date to your new statement date.

  • That ADB is multiplied by your daily periodic rate (DPR), which is your Annual Percentage Rate (APR) divided by 365.

  • The result is multiplied by the number of days in your billing cycle.

Written like a formula, those three bullets look like this:

 

ADB x DPR x Days in billing cycle = your interest charge.

 

To translate that into dollars, consider this hypothetical example: Let's say your September statement balance was $2,000 and you chose to revolve half by paying $1,000 on the due date. To oversimplify, let’s say you made no purchases since the last statement closed, so that your daily balance was always $2,000 until the payment. Running the formula on those numbers (and using the national average APR of approximately 20%) results in an interest charge of $32.88 on your October statement.5

 

You would be charged interest all the way back to the last statement date, and if you had made additional transactions, you would have paid interest on those amounts, too, calculated from the day of each transaction. Looking ahead, you would continue to pay interest, compounded daily, until the next time you pay off a statement balance in full. That’s how, over time, carrying a revolving balance can add up to significant interest costs.

Tips for Managing Your Credit Card Balance

Credit cards are valuable tools for managing day-to-day expenses and building your credit score. However, it’s important to stay on top of your balance to avoid debt and high-interest charges. Below are a few tips to help you manage your credit card balance:

 

  • Keep your credit utilization low: Your credit utilization ratio is the amount of available credit you use on your cards. Generally, it’s best to keep this ratio under 30%, as a higher balance may damage your credit score.
  • Review your credit card statement regularly: Review your statement each month. Carefully reviewing your statements monthly can help you to track your expenses.
  • Pay your credit card bill on time: Late payments can negatively impact your credit score and lead to costly late fees and interest charges. Set up automatic payments if possible so you never miss a payment.
  • Pay your bill in full: If possible, pay off the balance in full each month. If you can’t pay the entire balance at once, make sure you make the minimum payment by the due date.

FAQs on What Is a Credit Card Balance

What should my credit card balance be?

 

The right balance for you will depend on your circumstances. It will also depend on your credit limits across all of your credit cards, and how much of your available credit you’ve used, also known as your credit utilization ratio. It’s a good idea to try to keep your total credit utilization ratio below 30% of your total credit limit, as this can help you to maintain a good credit score.

 

Does having a credit card balance mean I owe money?

 

A credit card balance is the amount of money that you owe on your account. Your credit card balance is simply the amount of credit you’ve used on your card that has not been paid back yet.

 

Should I pay off my credit card balance?

 

Carrying a balance on your credit card can result in interest charges and may incur other additional fees as well. This will depend on the card in question. Paying off your balance in full each month can help you to avoid certain charges and fees. Paying off your balance may also help to improve your credit score as well.


The Takeaway

A credit card balance can mean more than one thing, so it’s important to understand the definitions of each type of balance and how they work together. The most responsible financial move you can make is to pay your balance in full monthly if possible. But if you have to carry a revolving balance, ensure you understand how much interest you’ll be charged and put a plan in place to pay it off quickly.


Mike Azzara

Mike Azzara has covered technology and financial services issues for more than 30 years as a writer, editor, publisher, consultant, and analyst for media brands, startups, and established corporations.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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