WHAT IS AN OUTSTANDING BALANCE? How Does It Affect Your Credit Card?

what is an outstanding balance

Handling credit card bills is part of managing your personal finances. If you frequently use credit cards, knowing your outstanding balance can assist you in keeping track of how much you owe a credit card company. But, what exactly is an outstanding balance?

Outstanding balance, also known as current balance or balance outstanding, is a statistic on your credit card account that represents the total amount owed. Given that you do not pay immediately when you use a credit card, this figure represents what you are expected to pay at the end of the specified term, which is usually monthly. Continue reading to learn more about outstanding balances and what they represent for your credit.

Definition of Outstanding Balance

An outstanding balance is an amount owed on any interest-bearing debt, such as a credit card. It usually refers to the amount you owe from credit card purchases and other activities. It’s also referred to as your current balance.

Your outstanding balance is the amount you now owe on your card, which may include:

  • Purchases
  • Advances on cash
  • Transfers of balances
  • Charges for interest
  • Fees

Card companies place credit restrictions (spending limits) on your cards. Your outstanding balance influences how much credit (money left to spend) you have available to you. Simply subtract your outstanding balance from your credit limit to find out how much you have left. Also, don’t forget to include any charges that haven’t yet appeared on your credit card statement.

What Is An Outstanding Balance On A Credit Card?

The total unpaid amount on your credit card is referred to as an “outstanding balance,” which is sometimes known as a “current balance.” Purchases, balance transfers, cash advances, interest charges, and fees are all included. Thus, the outstanding amount is a real-time snapshot of your credit card account.

Every time you use your credit card, the outstanding balance changes, even from one minute to the next. For example, if you charge a $75 supper to your credit card, the $75 will be added to your outstanding amount once the transaction posts to your account.

The outstanding amount influences how much credit is accessible at any particular time. Subtract the outstanding debt from your credit limit and add any pending charges that haven’t yet appeared in your account to determine your available credit.

Assume your outstanding balance is $1,500, your credit limit is $5,000, and you have a $200 pending transaction that hasn’t yet appeared on your account. Your available credit at the time is $3,300 ($5,000 minus $1,500 and $200 = $3,300).

Where can you find your account’s outstanding balance? This information can be obtained by going into your account online or using a mobile app, or by contacting the firm that issued the credit card (like American Express, Capital One, Chase, or Citibank).

How Do I Find Out The Outstanding Balance On My Credit Card?

To determine your outstanding balance, log in to your credit card account. Most credit card companies offer online and mobile access. You can also get your outstanding balance by calling the card issuer’s customer care number. On the back of most credit cards, the issuer’s customer support phone number is listed.

Getting rid of your credit card debt

It’s a good idea to pay off your statement balance each month if you want to keep your credit card company happy. Furthermore, it means that you will not have to pay interest on your purchases.

The best approach is to pay off your entire debt each month. This will assist you to avoid the interest charges that are caused by a positive credit card outstanding balance. It’s not always simple to keep up with credit card payments, and you may occasionally find yourself unable to pay the full debt. In these circumstances, you should make the bare minimum payment to maintain your credit score.

If you’re having trouble keeping up with credit card payments and interest, Buy Now Pay Later (BNPL) could be a quick and cost-effective solution. In a word, these third-party lenders offer interest-free borrowing that can be paid off in manageable installments.

What is the Difference Between the Outstanding Balance and The Remaining Balance?

Assume you used your credit card to make a $500 purchase. Then you access your credit card app. You have a $500 overdue balance, according to the system.

You don’t have $500 to pay down the entire outstanding sum, but you can pay $200. So you mail a $200 payment.

You still owe $300 to the credit card company. That $300 represents your remaining balance.

The terms “remaining balance” and “outstanding balance” refer to the amount you owe your credit card company. The remaining balance is the amount you owe after making a payment. The outstanding balance is the total amount owed (which is sometimes the same as your remaining balance).

What’s the Difference Between an Outstanding Balance and a Statement Balance?

The outstanding balance on your credit card is not the same as the statement balance. Whereas your ongoing balance is a current representation of what you owe, your statement balance refers to the amount of money owed on the prior statement that you received. We can either display this as a monthly balance or a new balance.

In other words, your statement balance reflects all transactions that occurred during the most recent billing period, which is typically monthly. Depending on the current activity on your card, your statement may not always show the same sum as the balance outstanding. For example, if you made a payment after the end date of the monthly statement, you will see a difference between the two amounts.

What Effect Does an Outstanding Balance Have on My Credit Score?

A credit score is determined by a number of things. The first is your credit utilization. That is the percentage of available credit that you are using. Credit utilization accounts for 30% of a FICO® Score.

Even if you make on-time payments, carrying significant credit card balances may reduce your credit score. If you apply for new credit, you may scare away creditors. They may regard you as a high-risk customer because you are already utilizing a substantial portion of your available credit.

What Percentage of Your Outstanding Balance Should You Pay?

You’re looking at your credit card account and trying to figure out how much of your outstanding balance to pay. The decision is based on your current financial status.

The statement balance frequently surpasses the minimal amount owed on a monthly statement. Assume the statement balance is $2,000 and the minimum payment is $50. At the very least, you should pay the required $50 by the due date.

However, if you want to avoid incurring interest, you should pay the entire $2,000 sum on your bill. Paying the entire statement balance is a good approach to avoid interest charges.

You are not required to pay the outstanding balance in order to avoid interest and fees. That will be taken care of by paying the statement balance.

However, if you pay off the entire outstanding balance, you will be able to minimize your credit utilization percentage. This ratio denotes the amount you owe on all of your credit cards divided by the total of your credit card limits.

Here’s how the credit utilization ratio works in practice. On your three credit cards, you owe a total of $2,500. All three cards have a combined credit limit of $10,000. This means you’re utilizing 25% of your available credit, resulting in a credit utilization ratio of 25%.

What is the significance of the credit usage ratio? It normally accounts for 30% of your credit score. Some experts advise keeping your credit usage ratio below 30%. Others, however, advocate for smaller percentages, such as 25% or even 10%.

What is an Average Outstanding Balance?

The amount you owe averaged over a certain time period is your average outstanding debt. The average daily balance on a credit card, for example, is the average amount you carry each day in a statement cycle. To compute it, we add your balance on each day and divide it by the number of days in that period.

Most credit card companies calculate the credit card interest you owe on a daily basis. We call this daily interest payment the daily periodic rate. That computation is based on your average daily account balance.

Because interest is calculated daily, it’s a good idea to pay off your debt as soon as possible.

Understanding Average Outstanding Balance

Average outstanding amounts are relevant for a variety of reasons. Lenders frequently have a large portfolio of loans which they evaluate in aggregate in terms of risk and profitability. Banks use the average outstanding balance to determine how much interest they pay to account holders or charge to borrowers each month. If a bank has a large outstanding balance in its lending portfolio, it may suggest that it is having difficulty collecting on its loans and may be an indication of future financial hardship.

Many credit card businesses, particularly credit cards, utilize an average daily outstanding balance technique to calculate interest on a revolving credit loan. As credit card customers make transactions throughout the month, they acquire outstanding balances. An average daily balance approach allows a credit card firm to charge somewhat more interest because it considers a cardholder’s balances over the course of a month rather than simply at the closing date.

Credit rating agencies will analyze a consumer’s outstanding credit card balances as part of generating a FICO credit score. Borrowers should exercise discipline by maintaining credit card balances far below their credit card limits. Credit cards maxed out, late payments, and asking for new credit all increase existing balances and can reduce FICO ratings.

Interest on Average Outstanding Balances 

With average daily outstanding balance calculations, the creditor may take an average of the balances over the previous 30 days and impose interest on a daily basis. Average daily balance interest is often calculated as a product of average daily balances across a statement cycle, with interest calculated on a cumulative daily basis at the conclusion of the period.

Regardless, the daily periodic rate is calculated by dividing the annual percentage rate (APR) by 365. If interest is calculated cumulatively at the conclusion of a cycle, it is calculated exclusively on the number of days in that cycle.

Other average techniques are also available. A simple average, for example, can be utilized between two dates by dividing the initial balance plus the ending balance by two and then calculating interest based on a monthly rate.

In Conclusion,

Credit card balances that are too high might harm both your credit utilization ratio and your payment history. This, in turn, may make it more difficult to qualify for credit or may result in higher interest rates if you are able to secure new credit. To avoid these types of penalties, it is always a good rule of thumb to pay your debt in full at the conclusion of each billing cycle.

What is an Outstanding Balance FAQs

DO I need to pay the outstanding balance?

You are not required to pay the outstanding balance in order to avoid interest and fees. That will be taken care of by paying the statement balance. However, if you pay off the entire outstanding balance, you will be able to minimize your credit utilization percentage.

What is an example of outstanding balance?

For example, if you borrowed $4,000 and returned $500, the remaining balance would be $3,500. Debt interest is typically calculated on the outstanding balance rather than the original amount borrowed.

Does outstanding balance affect your credit score?

Outstanding balances on your credit card can harm your credit score, and the effect is most pronounced when amounts exceed 30 percent of a card’s borrowing limit.

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