What is an outstanding balance? Differences and meaning

An outstanding balance on your credit card can significantly impact your financial health. Whether you're managing personal expenses or business transactions, it's critical to understand your outstanding balance and how it affects your financial situation. An outstanding balance refers to the amount you owe on your credit card that has not yet been paid.

This guide will explain the importance of managing your outstanding balance, how it impacts your credit score, and strategies for effective debt management. By the end, you'll have a clearer understanding of how to confidently tackle your financial responsibilities.

Credit cards are currently the best way to pay transaction costs. They are also a very convenient way to support your cash flow while you are at work in the waiting stage of your income. However, they can have the potential to create serious financial distress for you if you skip or make late payments.

The amount owed and not yet paid, also called the current balance or outstanding balance, is the base value that appears on the credit card statement and specifies the total amount that the cardholder has not yet paid.

Since you are not required to make a payment when using a credit card, the total will show what you will need to pay at the end of the term, which is usually monthly. By reading further, you will be able to understand the concept of outstanding balance and how it reflects your credit.

Another requirement to take care of your financial situation is credit card payments. Regular use of credit cards will allow you to know what the outstanding balance is, which will help you keep track of the money you have borrowed from a credit card company.

Outstanding Balance: Meaning and Definition

The term outstanding balance, or simply current balance, is the amount of money not paid on the credit card or loan account. Any debt resulting from transactions such as purchases, interest charges, cash advances, or balance transfers. An outstanding balance provides a current view of the credit card account, interpreted in its usual and strict meaning.

This means that the figure presented is current and correct, and reflects what you have spent on your card so far. Your outstanding balance is what you currently have on your card and may include the following:

• Shopping
• Cash advance
• Balance Transfers
• Interest charges
• Fee

Every time you make purchases at the bank, you have an outstanding balance, which helps you understand how much credit you have available for your next purchase. Your credit score indicates the maximum amount a lender will allow you to borrow with a credit card or line of credit.

For example, if you owe $2000 on your credit card, but your credit limit is $4500 and you have a pending transaction of $300 on your account, your remaining credit at this time is $2200 (4500 – 2000 – 300 = $2200).

What is an outstanding balance on a credit card?

If you want to keep the credit card company happy, the best way to do that is to pay off your statement balance on a monthly basis. Plus, you don't need to pay interest on your purchases. To avoid being charged interest on a positive credit card balance, it's a good idea to pay off the balance on a monthly basis. This way, you avoid interest from accruing.

A positive balance always helps you get the most out of a credit card, but there are times when you cannot pay the full balance. In these types of situations, you pay the minimum amount that allows you to maintain your credit rating.

What increases the total balance of your loan?

Your average score depends on several indicators. Credit utilization score is generally the primary factor, accounting for 30% of the FICO score. Credit utilization refers to the amount of revolving credit used, often referred to as total credit limit.

In fact, carrying a huge balance on your credit card can cause your credit score to plummet. Keeping track of the outstanding balance on your cards will prevent this problem.

However, most loans have amortization, meaning that if you pay regularly, the lender will have paid off the loan in full at the end of the term. Negative amortization is allowed, but is rarely used, as it is a high-risk transaction for both lenders and borrowers.

One area where negative amortization is still being addressed is student loans, which is why a new income-based amortization plan was created in 2023.

What is a statement balance?

During each billing cycle, your credit card issuer will, at the time of billing, report your credit usage to your credit card company's credit reporting agency. Typically, however, credit card issuers report balances on statements. At the same time, some issuers send the current balance instead. By checking directly with your credit card issuer, you can easily find out what balance is being reported and when it appears on your report.

Balances affect your credit by influencing your credit utilization ratio, which impacts your ability to obtain favorable terms on loans and new credit cards.

After your credit card issuer tells you how much you owe, the credit bureaus use your debt-to-credit ratio—the proportion of your total available credit that you are using at any given time.

One of the most important factors in your credit score is your credit utilization rate. Therefore, it can negatively impact your chances of approval for new credit cards and, consequently, your ability to apply for lower interest rates and larger credit limits. If you want a loan to buy a house or a car, then the bank or financial institutions will look at your credit score.

In simple terms, the lower your credit utilization rate, the better, but for those who don't know exactly what a low credit utilization rate is, the main parts in the FICO Score and Vantage Score scoring models, a current balance that doesn't exceed 30% of your total credit limit will be a big differentiator.

What is an outstanding current balance?

The statement balance represents your card purchases and payments over a given period. In contrast, the current balance reflects all charges and payment activity on your credit card account up to the date the statement is generated.

Your current balance doesn't stay fixed like the balance on your statement. Your current balance is updated every time you use your credit card. This gives you a better representation of the total amount you owe on your credit card at any given time.

Statement balance vs. current balance

The outstanding balance on your credit card represents the amount you currently owe. The statement balance is the amount owed from the previous statement and is available for payment. It can be viewed as the monthly balance or the new balance.

In other words, the statement balance totals all transactions made during the most recent billing cycle, usually a month.

Later, you will notice a difference between both numbers, for example after making a payment publishes the date of the monthly statement.

Why are my statement balance and current balance different?

Your current balance is continually updated based on your account activity. It shows purchases, payments, deposits, and interest that accrued after your billing cycle closes. For example, if your billing cycle is from the 1st to the 28th and you spent $1,000, your statement balance on the 28th will be $1,000. If you make an additional purchase of $500 on the 29th, your statement balance will still be $1,000. Your current balance will still increase to $1,500 because the new transaction will be included after your billing cycle closes.

What happens if I can't pay the statement balance?

If you can't pay your statement or current balance in full, you can choose to make the minimum payment. This helps avoid late fees and protects your credit rating. Keep in mind that paying only the minimum amount allows you to accumulate more money for interest.

It is preferable to pay the full balance on the statement whenever possible to reduce interest and pay off the debt sooner.

In conclusion, understanding your outstanding balance, statement balance, and current balance is essential to effectively managing your credit. Making on-time monthly payments and keeping balances low relative to your credit limits can have a positive impact on your credit score and overall credit report. By staying informed and being proactive, you can avoid unnecessary interest charges and maintain healthy financial health.