What Is a Credit Card Balance?

Your outstanding balance is the total amount you currently owe to your card issuer. This typically includes purchases, interest charges, and fees, along with fees and charges for balance transfers and cash advances.¹ You can typically find your outstanding balance on your credit card statement.

This is the picture of your outstanding credit card balance at the end of each day.² This will typically include any new purchases you’ve made throughout the day and any interest, fees, or other charges that have been applied to your account.

Average daily balance calculations vary, depending on the credit card company. However, you can typically find your average daily balance for a month by adding up the daily balances in the month and dividing it by the number of days in the billing cycle.³

If you don’t pay your entire statement balance by the due date, finance industry professionals say you revolve the unpaid portion. That’s your revolving balance – essentially, a loan. As with any loan, you’ll pay interest, as explained below. About half (47%) of actively used credit card accounts carry a revolving balance, according to a 2022 survey from the Consumer Financial Protection Bureau (CFPB).⁴

You may have heard that carrying a revolving balance helps your credit score by demonstrating your ability to manage debt responsibly. But this is a costly mistake: When you revolve a balance, you are taking out a loan, and now you must pay interest.

While your ability to manage debt responsibly is among the most important factors in determining your credit score, you demonstrate that simply by having a credit line and paying your bills on time.

How much of your available balance should you use? That depends on a few factors including your financing requirements. It’ll also depend on how many credit cards you have, their balances, and your total available credit limit, that is, how much credit you have available across all of the cards. The percentage of your total available credit that you’ve used is known as your credit utilization ratio, and it’s a good idea to keep this at 30% of your available credit limit. Going too high could negatively impact your credit score.

Here’s how credit card interest is usually calculated if you revolve a balance:

• Your ADB is determined from your prior statement date to your new statement date.
• That ADB is multiplied by your daily periodic rate (DPR), which is your Annual Percentage Rate (APR) divided by 365.
• The result is multiplied by the number of days in your billing cycle.

Written like a formula, those three bullets look like this:

ADB x DPR x Days in billing cycle = your interest charge.

To translate that into dollars, consider this hypothetical example: Let's say your September statement balance was $2,000 and you chose to revolve half by paying $1,000 on the due date. To oversimplify, let’s say you made no purchases since the last statement closed, so that your daily balance was always $2,000 until the payment. Running the formula on those numbers (and using the national average APR of approximately 20%) results in an interest charge of $32.88 on your October statement.⁵

You would be charged interest all the way back to the last statement date, and if you had made additional transactions, you would have paid interest on those amounts, too, calculated from the day of each transaction. Looking ahead, you would continue to pay interest, compounded daily, until the next time you pay off a statement balance in full. That’s how, over time, carrying a revolving balance can add up to significant interest costs.

Credit cards are valuable tools for managing day-to-day expenses and building your credit score. However, it’s important to stay on top of your balance to avoid debt and high-interest charges. Below are a few tips to help you manage your credit card balance:

• Keep your credit utilization low: Your credit utilization ratio is the amount of available credit you use on your cards. Generally, it’s best to keep this ratio under 30%, as a higher balance may damage your credit score.
• Review your credit card statement regularly: Review your statement each month. Carefully reviewing your statements monthly can help you to track your expenses.
• Pay your credit card bill on time: Late payments can negatively impact your credit score and lead to costly late fees and interest charges. Set up automatic payments if possible so you never miss a payment.
• Pay your bill in full: If possible, pay off the balance in full each month. If you can’t pay the entire balance at once, make sure you make the minimum payment by the due date.