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Outstanding amount in Credit Cards: What does it mean?

10 Nov 2021 by Team FinFIRST
Outstanding Balance in Credit Card

The outstanding amount in credit cards is an important component that affects your credit limit and credit score


It takes effort to decipher a credit card statement. There are many variables involved, with each having its importance. The outstanding amount, though, is the trickiest to understand. But don't worry! This article will give you a complete picture of what is an outstanding balance and why it varies from the other credit card balances that appear on your statement.

What is the outstanding amount on a credit card?


An outstanding amount is a balance you owe on any debt that incurs interest. Often, it refers to transactions made on your credit card. It is also called your current balance.

Your outstanding amount on your credit card is what you currently owe on your card and can include:

  • Purchases
  • Cash advances
  • Balance transfers
  • Interest charges
  • Fees

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Having learnt the meaning of an outstanding amount in a credit card, let us learn how to deal with it.

Interest on the outstanding credit card balance


Carrying a significant outstanding debt on a credit card comes with an equally heavy interest bill. Assume you have a ₹7,000 monthly balance. If you pay 15% interest, your monthly payment will be ₹87.50 and ₹1,050 per year. Most of this interest expenditure can be avoided by paying off the outstanding amount each month. Some credit cards also have a grace period. You will not incur any interest if you settle the outstanding debt within the grace period each month.

The link between the outstanding amount on a credit card and credit score


A heavy outstanding balance might harm your credit score even if you settle your credit card bill on time every month. It is because of the credit utilisation rate. The utilisation rate is calculated by dividing your credit limit by the outstanding debt at the credit reporting agency.

If your credit card limit is ₹7,500 and the amount you use is ₹6,000, your score will be impacted. It equates to an 80% credit use rate. A high credit use rate will make lenders unwilling to lend you money, which reduces your credit score. It happens as it is harder for the borrower to pay the amount back, increasing the risk for the lender. Pay off the outstanding balance every month to save more and improve your credit score.

Companies that issue credit cards assign specific credit limits (spending limits) on your cards. The outstanding amount on your credit card helps determine how much credit (money left to spend) you have available. Subtract your outstanding credit card balance from your credit limit to find how much you can spend.

 

Difference between the outstanding credit card balance and the statement balance


The sum you owe depending on the last statement, or invoice, is referred to as your statement balance. It may either be displayed as a monthly balance or a new total. This sum may or may not correspond to the outstanding amount.

The balance on your statement represents your purchases, interest charges, fees, and other charges from the most recent monthly billing cycle.

Unless the credit card provider sends the bill for the month, the statement balance remains unchanged. The statement balance and the outstanding amount may or may not match.

It depends on whether your card has been used since the statement balance was generated. The statement balance and outstanding amount may vary if there has been expenditure between monthly statements. The statement balance and outstanding amount may be the same if there has been no spending between monthly statements.

A credit card can be a true asset if you know how to use it. Having the right card is equally important, as it can help you earn cashback, which reduces your liability. You explore the available credit card options. The interest rates applicable on the cards are some of the most affordable in the industry. You can also use the different EMI options to save more.

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.