Credit cards can be great ways to pay for everyday purchases and a useful tool in your financial toolkit because they help you build credit. But, they can also be dangerous if you get a little too swipe happy and carry a balance you can’t pay off.
What is a Credit Card Balance?
Your credit card balance just means whatever money you owe your credit card issuer on your credit card bills due date. It changes with every purchase or payment that you make. When you make a purchase, your balance increases. When you make a payment, your balance decreases.
Cash advances, balance transfers, interest charges, and fees (annual or late) during the billing cycle also affect your total balance.
When you don’t pay your bill off every month, you end up paying interest and your balance will carry over to the next month.
Is Carrying a Balance Bad?
It’s usually not a good idea to carry a balance on your credit card, but life happens! Sometimes, you just can’t pay the whole card off every month. If you’re ever in that situation, just make sure you monitor your credit limit because you don’t want to go over.
Ideally, you want to stay below your credit limit and keep your credit utilization ratio low. Wait, credit utilization? Your credit card utilization is all about how much you’re using of your total available credit.
All the gurus say you should keep it at or below 30%. So, if you have a total credit limit of $1200, you wouldn’t want to have a balance higher than $400.
If you’re having issues staying below your credit limit, there are a few things you can do:
- Ask your lender for a higher credit limit. This will be a hard inquiry that shows up on your credit report, but it can give you some breathing room (as long as you don’t go blow a bag).
- Make multiple payments a month. Instead of paying once a month, make more than one payment. This can help boost your credit score and make sure your balance doesn’t get too high.
- Transfer your balance. If your lender isn’t willing to give you a higher credit limit or you have too high of an interest rate and you know you’re going to have to carry a balance for a bit, check out a balance transfer card. It will enable you to move your balance to another lender hopefully with more favorable terms like that lower interest rate or higher credit limit we both know you need.
My Bill is Mentioning Multiple Statements. What’s up with that?
Yeah, they do that sometimes. You know, it’s like they enjoy making your finances confusing.
We’ve established that your credit card balance is what you owe your credit card company at any point in time. You’re going to see them reference some other balances or statements on your credit card bill though. Here’s what those mean:
Minimum Payment
This is what you have to pay by your bills due date in order to avoid being charged a late fee. It’s often not going to cover the interest on your card and only paying the minimum payment each month is a sure fire way to stay or get in credit card debt.
But, if it’s all you can afford, then of course pay that because no or late payments will negatively affect your credit by ruining your payment history. And also, no one wants to be charged a late fee.
Statement Balance
Your statement balance includes all of the charges that were on your credit card when the billing cycle ended, any balance that is still hanging around from previous months, and any interest that has been building up on your account. It doesn’t include purchases, cash advances, or balance transfers that happened after the billing cycle ended.
Staying on top of your many balances is important and you can often use your lenders mobile app to get notifications and check your balance whenever you want. Try not to obsess about it though!
How Can EXTRA help?
EXTRA is the first debit card that helps you build credit without needing to open a credit card.¹
How do we do it?
When you sign up for EXTRA, you connect your bank account² and we give you a spending limit based on your bank balance with, you guessed it, no credit check. As you make purchases with your EXTRA card, we spot you for your purchases and then pay ourselves back the next business day. At the end of the month, we tally up all the purchases you made with EXTRA and report them to the credit bureaus as credit worthy payments.
How does credit utilization work with us?
Well, because we pay ourselves back the next day, your utilization ratio is reset daily. If we’re being honest, your utilization ratio stays at virtually 0%, which is amazing for your credit score.
The choice is yours! Use a credit card and have to worry about your balance and utilization ratios and all those different kinds of payments. Or, use EXTRA and build your credit with ease.¹
