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A credit card balance is the total amount of money you currently owe on your credit card account.
Your balance changes based on your account activity. When you make a purchase, your balance increases. When you make a payment, it decreases.
Purchases aren’t the only factor that can add to your balance. A credit card balance can also include other charges incurred during the billing cycle, such as …
- Cash advances
- Balance transfers
- Interest charges
- Fees (such as annual fees or late fees)
If you can’t pay your bill in full and on time each month, the rest of the balance carries over to the next billing cycle. You build up interest charges on the portion of your balance that isn’t paid on time.
Read more to learn about the impact that carrying a credit card balance can have on your financial health.
- What does it mean to carry a balance on a credit card?
- What is a good balance on a credit card?
- What’s the difference between a minimum payment, statement balance and credit card balance?
- Why is it important to keep track of my credit card balance?
If you don’t pay your credit card bill on time and in full each month, whatever’s left — the unpaid balance — gets carried over to the next billing cycle. If you carry a balance, you’ll most likely be charged interest on the portion of the balance you didn’t pay.
In general, it’s probably not a good idea to carry a credit card balance. But life happens and sometimes it’s not possible to pay your entire balance on time. If you find yourself in this situation, pay attention to how much you’re spending compared with your credit limit.
If you’ve reached your credit limit or are getting close to it, one of the following tactics could help you reduce the impact on your credit scores by lowering your credit utilization ratio:
- Ask your credit card company to raise your credit limit (just remember that this could result in a hard inquiry on your credit)
- Make more than one payment on your credit card account each month instead of waiting and paying one lump sum – this can help ensure your balance doesn’t get too high
While your credit card balance is the total amount you currently owe on your account, you’ll likely see other numbers on your credit card statement each month, such as:
- Minimum payment: The amount of money you have to pay to your credit card company by the due date in order to avoid being charged a late fee.
- Statement balance: Made up of all the charges that were on your credit card at the end of your billing cycle, any balance carried over and any accrued interest. It doesn’t include things such as additional purchases, cash advances or balance transfers added to your balance after the billing cycle closed.
For your most up-to-date account information, you can often log into your account online or call your credit card company.Learn more: How to pay your credit card bill
Paying attention to your credit card balance can help you keep your finances on track and improve your credit health. Here are a few reasons why.
- It can help you monitor your spending. When you make purchases with a credit card, it’s easy to forget how much you’ve spent and what you’ve spent it on. Keeping track of your balance can help you stay within your budget.
- It can help you avoid interest charges. Monitoring your purchases can help you keep your spending in check so you’re able to pay your bill in full and on time to avoid paying interest on your purchases.
- It can help you keep your credit utilization low. If you frequently max out your credit cards or get too close to your cards’ limits, your credit utilization ratio, which refers to how much of your credit limit you’re using, can be high. Tracking your spending can help you stay under your credit limit and keep your utilization low, which can have a positive effect on your credit.
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“Credit cards can be a powerful tool for building or rebuilding credit, but you have to make sure you’re using [them] wisely,” says Ash Exantus, director of financial education at BankMobile.
Because carrying a balance can have a negative impact on your credit health, and those interest payments can add up, it’s a good idea to pay off any credit card debt as quickly as possible.
To avoid building up a balance in the first place, Exantus advises consumers not to use credit cards for anything they wouldn’t buy with cash.