- 1 Difference Between Current Balance and Available Balance
- 2 Pay Last Statement Balance or Current Balance to Avoid Credit Card Interest?
- 3 Carrying a Balance: Current Balance vs Statement Balance
- 4 Your Statement Balance vs. Current Balance: Do You Know the Difference?
Difference Between Current Balance and Available Balance
Posted on August 27, 2011 by olivia Last updated on: August 27, 2011
Current Balance vs Available Balance
Have you been confused by the statement slip coming out of the ATM machine that mentions both current balance and available balance in your bank account? Often it so happens that you go to your bank presenting a withdrawal slip thinking that you have the money in your account, but the cashier tells you curtly that your account does not have sufficient balance to entertain your withdrawal command. You are flabbergasted as you received a check from your client that you deposited duly in your account, and now you are being told that the amount in your account is not sufficient. It is here that knowing the difference between current balance and available balance comes handy. Many like you face difficulties as they do not know the differences between these two terms. This article attempts to explain the difference between current balance and available balance so that you are never in doubt pertaining to balance amount in your bank account.
In banking parlance, available balance refers to the actual amount available to the user without any restrictions, holds or uncollected funds. Current balance is often a bigger amount that includes all funds including those that may be on hold, are still uncollected and thus, restricted by the bank from being used by the person holding the account. It usually happens in instances of checks (cheques) having been deposited in a bank account. In different countries, there are differences in clearing systems, and so there are places where clearing may be over in a few hours and banks that take longer in clearing a check, especially if it is outstation check. Also, checks (cheques) drawn on another bank rather than your own take a longer time for clearance than that are drawn in favor of your bank. Current balance just implies that though your bank has noticed that you have deposited a check in your account and the amount is being deposited in due process in your account, you are still barred from using these funds until the check clears. Until the time check is cleared, you are allowed to make use of only available funds and the check amount is reflected in available balance only when it is finally cleared. Current balance is also referred to as shadow balance in some places to differentiate it from the available balance.
Suppose you have $200 in your saving account and use your debit card to pay $50 to Electricity Company against monthly bill. The terminal at the company sends a message to the bank that you wish to spend $50 from your account. The bank agrees and puts $50 aside for the transaction, and now, though current balance in your account is still $200, the available balance is $200-$50 = $150 and not $200.
What is the difference between Current Balance and Available Balance?
· The difference between current balance and available balance is important to understand as you are saved from having to cough up over draft fees.
· Available balance is the amount actually allowed to be withdrawn or used, while current balance includes amounts that may be on hold or still uncollected such as uncleared check (cheque).
Pay Last Statement Balance or Current Balance to Avoid Credit Card Interest?
Do you pay last statement balance or current balance to avoid credit card interest? If you are a thrifty credit card user, then you know that paying your card off every month will help you avoid those sky-high interest charges. But if you have purchased lots of items, you may be confused as to whether or not you need to pay the “Current Balance” or the “Last Statement Balance” (or “Statement Balance”) to avoid interest charges. This article has the answer you need.
Which to Pay to Avoid Credit Card Interest? Last Statement Balance vs. Current Balance:
If you are looking for the short answer to the question: Statement balance is what you need to pay each month to avoid interest. In general, most credit cards allow a grace period to pay your purchases off before they begin to accrue interest charges. This is great, and I love this feature about credit cards. But to avoid the interest, you MUST be sure to pay this amount off in full each month.
But I first became confused one month when I made several big purchases when my wife and I bought our first home. Naturally, I didn’t want to have to pay the full balance off if I didn’t have to. I also didn’t want to pay any interest, and would have been happy to pay it in full if the alternative was an interest charge.
So as I went to pay my bill, there was 2 different amounts I could pay: the Last Statement Balance, and the Current Balance. Hmm, this confused me. The statement balance was lower, and the current balance was much higher. So which did I need to pay, and why were the amounts different?
The difference in the amounts was due to the fact that the old statement had given the charges I made during that period. Since I had used my card since the last statement was printed, I had accrued new charges. Therefore, the total credit card balance (called current balance), was higher than the “Last statement balance.”
Since the current balance includes purchased I had just made, I didn’t have to actually pay those off because they hadn’t yet accrued interest (they were still in the “grace period”). All I was required to pay was the actual “Last Statement Balance” to avoid interest charges.
So, I payed the last statement balance in full, leaving a small balance on my card from purchases I had recently made. When I received my next credit card bill, I had not been charged any interest, even though I did have some charges left after paying the “Last statement balance.”
And to this day, I still just pay the “statement balance” in full, regardless of how much the current balance is. That way, I make sure I have avoided all interest charges from month to month.
Carrying a Balance: Current Balance vs Statement Balance
I've recently acquired a Chase Freedom credit card. However, looking at information from this subreddit and /r/personalfinance has left me a bit confused. From /r/personalfinance Credit Cards Wiki:
You should pay the statement balance in full every month before the statement due date. If you pay your current balance in full before the billing cycle ends and the statement is generated, no balance will be reported to the credit agencies.
This part I understand. The next question in the wiki, "Should I carry a small balance" is where I get confused.
No. This is a popular misconception about credit and credit cards. There is a benefit to using your credit card routinely and paying off the full statement balance each month after the statement is generated. There is not any additional benefit to carrying over any balance to the next month, which results in unnecessary interest charges (not just on the balance carried over, but on any new charges made the next month).
What exactly are they referring to when they say any balance? I had a balance of $714.04 on my last statement. I received the statement on December 3, it was reported to the credit agencies on December 4, and paid in full on December 5. Since that time, I've accumulated a new balance of $706.01.
So my question is this—will carrying that balance (current balance) past the next payment due date negatively impact my credit score or cause my to incur any interest?
I've listed all my account information as it currently appears on my Chase mobile banking home page. Thanks in advance!
If you paid less than the full $714.04 by your last due date, that would be considered "carrying a balance." You would be charged interest on the difference AND be charged interest immediately on your current balance of $706.01 from the day of each purchase. In other words, NEVER do this. There's a myth that "carrying a balance" helps your credit score. It doesn't, and it only costs you money.
The italicized portion of your quote above refers to something different. That's a strategy to maximize your credit score. You can pay all but a small portion of your current balance, say $700, leaving $6.01 to appear on your 12/28 statement. That tiny amount is all that will be reported to the credit agencies and you'll look like a rock star to them!
This is the answer I was looking for. Thank you!
Yes, carrying a balance negatively impacts credit score. Part of the credit score is age of accounts, part of it is used credit. They are both calculated in similar fashion. Add up all credit cards max, add up all credit cards balance. divide balance by max for percentage of credit used. Running 10 or 20% may not have a noticeable impact on credit, however running 70-80-90% will have a very negative effect on credit, possibly several hundred points.
The best example I can give is I'm running 90% on my credit cards, around 4k. And my score has gone from close to 700 to about 550. Granted my credit was weak to begin with but it's atrocious right now. There was a month when it started that it dropped 100 points for sure.
Right. That all makes sense, but please clarify; when you say
carrying a balance negatively impacts credit score.
are you referring to the statement balance or current balance?
If I follow best practices, as I understand them, I will be utilizing approximately 30% of available credit at the time the statement is issued. I then wait for this to be reported to the credit agencies (in my case one day after I receive my statement) and then pay it in whole.
My question is about the balance (current balance) I accrue in the time between paying off the statement balance and the statement due date. Do I need to pay that balance (current balance) before the next payment due date?
If you don't make a payment and the current balance turns into the statement balance, I would expect it to slightly effect your credit.
I honestly haven't paid enough attention to mine to give you a definitive answer but I remember thinking this same line of logic in the beginning of running my balance up.
Honestly, I wouldn't worry about it to this level of detail. The truth is that your credit score is a snapshot of your finances at a moment in time. However, trying to make everything perfect at that exact moment in time is almost impossible. After all, exactly when banks report balances to credit bureaus can vary widely by bank, and when credit bureaus actually add that reported information to their databases can vary widely by bureau.
The best move for you is to simply pay off your entire balance whenever you can. That's the statement balance plus the full balance. It's just simpler that way.
If you want to try and time things a little more, send two payments to your card issuer each month. That way, you have a better chance of having a low balance on the date that your balance is pulled. But even that probably isn't worth the effort, unless you run up really big balances each month.
Anyway, don't overthink it. You're doing fine!
Your Statement Balance vs. Current Balance: Do You Know the Difference?
When consumers call their credit card companies, they are often given two balances. They receive their statement balance and their current balance. The two are often different, which can be confusing.
After understanding these two balances, consumers can make smart choices regarding their credit cards.
The statement balance refers to the amount the cardholder owed at the end of the last billing cycle. At the end of each billing cycle, credit card companies print the statement and send it to the consumer. The statement balance does not change until the end of the next billing statement.
The current balance includes all the cardholder’s transactions. If the cardholder charges something on the card after the billing cycle ends, it is reflected on the current balance.
That is why the current balance and the statement balance can be different. As long as the cardholder continues to use the card, the two balances will likely be different.
Statement Balance vs. Current Balance: Which is More Important?
Cardholders often don’t know which balance is more important, but it’s important to pay the correct balance in order to avoid costly interest charges.
Consumers must pay the complete statement balance to avoid interest charges. Interest is not accrued until the statement date. Purchase APR only kicks in on unpaid portions of the statement balance.
Could your credit cards use an upgrade?
For instance, assume a cardholder has a statement balance of $300 and a current balance of $400. He pays $100 toward the bill. That leaves $200 on the statement balance, but he will still owe $300 total.
Interest will only accrue on the $200. Then, the remaining charges will go on the next statement, and if everything isn’t paid in full after that due date, interest will accrue on that amount.
It is different with cash advances though. Interest starts accruing on cash advances prior to the statement date, so cardholders should pay the current balance if it includes a cash advance. Otherwise, they will be charged interest right away. Cash advances do not have a grace period, while regular purchases do.
Interest isn’t the only thing to consider when determining which balance is most important. Most banks, including American Express, Capital One, and Chase, report the statement balance to creditors. However, some credit card issuers report the current balance. If the current balance is higher than the statement balance, it will impact the credit score in a negative way.
Consumers should check with their credit card companies to determine when they report balances to the credit bureaus. Then they need to make sure their credit cards are paid down before the time of reporting. Otherwise, they’ll end up with a higher credit utilization rate.
The Bottom Line When it Comes to Credit Card Balances
Cardholders need to keep an eye on the amount they owe on their credit cards and pay them in full whenever possible. As long as they pay off their statement balances every month, they will be able stay on top of their debt. The alternative is missing a payment which could negatively impact your credit score.
Of course, it’s never a bad idea to pay extra when possible. The more consumers pay earlier on, the less they’ll ultimately owe on their credit cards.
Technology has made our lives easier in the past few years, for example, individuals had to sit and wait for their turn to withdraw cash from their bank accounts whenever they visited banks. But today, ATM machines provide us the fastest way of withdrawing the money from our bank accounts along with the receipt that carries a detail of remaining balance. Banks issue Visa card or Mastercard to users in order to get the money from ATMs. However, many a times individuals fail to understand certain terminologies used by the banks. They end up getting confused, which makes them spend more than their required limit and as a result, they have to pay the penalty.
Two of the most commonly confused terms used in the banking sector is Available Balance and Currency Balance. Although, these terms seem almost similar, if someone hears about them for the first time, yet, they are not similar. Available balance and current balance are two different terminologies, and every card holder should be aware of the difference between the two.
So, what exactly is Available Balance and Current Balance? Available balance is the amount of balance or funds that you can access immediately. If you exceed the level of available balance, overdraft balance starts to form, even if you are within the limits of your current balance. This balance is updated on a continuous basis in order to show the fees, charges, pending transactions, holds, and cleared deposits. Available balance can also be used by banks and other financial institutions to calculate overdraft balances and penalty charges in case the customers exceed the limit.
Current balance, on the other hand, is the amount of the money that you have in your account at all times. It changes every day when the business day ends at banks and remains the same until the business hours closes the following day. The current balance is also referred to as Account balance. However, some of the individuals may confuse the term ‘current’ with the updated amount shown in your bank account, but this may not always be the case, because the purchases you make or any other charges, fees, or deposits that you make after the business day closes do not appear until the next business day.
It is quite common for an individual or a layman to confuse these two account balances when he uses one of these balances as a reference point. As a result, the chances of errors increase and he may have to pay the penalty because of that confusion. Therefore, it is important for you to understand that available balance may not always reflect the true picture of your account, if, for example, you make an overnight purchase. Sometimes, the account charges appear a few days later than expected, due to which the account holder exceeds the allowed limit and he is unable to understand as to how he has exceeded the limit. It is not possible to remove each and every chance of error that is likely to occur unless of course, you reconcile your business or personal records with your account ledger on a regular basis.
If you are doubtful and confused about the available and current balance, you should refer to your bank statement, or the list of transactions to review your spending, because wire transfers, withdrawals and deposits also appear on your transaction list. Therefore, available balance should be compared with the starting balance of the month and the listed transactions on the statements in order to make sure all the transactions are accounted for correctly and accurately.