What is outstanding amount in credit card?

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10 MAY, 2024

A Kotak credit card is a great medium to manage daily expenses. It offers flexibility to make purchases and pay for them later. When you review your credit card statement, you will see various balances, including statement balance, current balance, and negative balance. Amid these, the outstanding balance is a significant element. The outstanding balance is the total amount you owe on your credit card, containing the purchases and any outstanding unpaid amounts. Explore the details of an outstanding credit card balance, what it means, and how it impacts your credit card.

What is an outstanding balance on a credit card?

The outstanding amount on a credit card is often termed a current balance. It signifies the total unpaid amount. It includes various elements like purchases, balance transfers, cash advances, interest charges, and fees. Essentially, it's a real-time summary of your credit card account that updates with each card use.

For instance, if you make a purchase of Rs 75, it will become part of the outstanding balance once the transaction is completed. This balance is important to determine your available credit. Subtracting it from your credit limit and adding any pending charges gives you your current available credit.

Suppose your current outstanding is Rs 1,500, and your credit limit is Rs 5,000, with a pending Rs 200 transaction. At that moment, your available credit stands at Rs 3,300 (Rs 5,000 - Rs 1,500 - Rs 200).

Finding your outstanding balance is also simple. You can view the balance by accessing your account online or through the mobile app. You can also contact your card issuer's customer service for this information.

What’s the difference between outstanding balance and statement balance?

Your outstanding balance and statement balance are important to manage your credit card. Here's how they differ:

Timing: Your statement balance reflects all transactions within a billing cycle, while your outstanding balance is the total amount you owe at a specific moment, potentially including unpaid balances from prior months.

Monthly Variation: A statement balance might appear as a monthly balance or a new balance, with its consistency subject to changes in activity during the billing cycle.

Billing Cycle: The billing cycle doesn't necessarily align with the calendar month. It runs from the statement's opening to closing dates. You must learn this timeframe for accurate balance comprehension.

Updates: The statement balance remains constant until the issuer generates the next monthly statement. Meanwhile, the outstanding payment fluctuates based on recent card activity.

Here is a table to make this difference clear:

Aspects	Outstanding Balance	Statement Balance
Definition	The total amount you currently owe at a specific moment, including unpaid balances from prior months.	The amount reflects all transactions during a billing cycle.
Timing	Represents your financial status at a specific moment in time.	Captures a snapshot of your finances at the end of a billing cycle.
Billing Cycle	May or may not align with the calendar month, depending on card activity.	The specific time period between the opening and closing dates of the statement.
Accuracy	Accurate up to the moment you check it; subject to change with new transactions.	Fixed until the next billing cycle; captures activity until the statement is generated.
Decision Making	Helps in making real-time financial decisions based on your current liability.	Useful for understanding your financial health at the conclusion of a billing cycle.
Reporting to Credit Bureaus	Reflects the most recent card activity, impacting your credit score accordingly.	Captures a summary that is reported to credit bureaus at the end of each billing cycle.

How much of your outstanding balance should you pay?

Deciding how much of your credit card outstanding balance to pay depends on your financial situation. Here are three strategies to consider:

Minimum Payment: Always make at least the minimum payment to avoid late fees or penalty APR. For example, if your statement balance is Rs 2,000, but the minimum payment is Rs 50, pay the minimum by the due date.

Avoiding Interest: To avoid interest charges, pay the entire statement balance of Rs 2,000. Paying the total statement balance ensures you won't have to pay interest and fees from the late payment.

Credit Utilisation Ratio: If possible, try paying off the entire outstanding balance to reduce your credit utilisation ratio. This ratio contributes significantly to your credit score, representing the amount you owe on all cards divided by their credit limits. Some experts suggest maintaining a credit utilisation ratio below 30%, with lower values like 25% or even 10%, as recommended by others.

What is chargeable interest on the outstanding credit card balance?

The chargeable interest on your outstanding credit card balance is determined by your interest rate and the average daily balance. The outstanding amount is the total sum you owe on your credit card, while the average daily balance is considered the average balance over a billing cycle.

For instance, if your outstanding balance is Rs 1,000 and you do not make any payments in the month, your average daily balance is calculated at Rs 1,000 for a billing cycle. The interest will be applied to this figure. Your interest rate, often expressed annually, influences how much interest accrues. So, the higher your outstanding amount and interest rate, the more you'll pay in interest.

How does an outstanding balance affect my credit card score?

Your credit card's outstanding balance significantly influences your credit card score. While timely payments positively impact your score, maintaining substantial credit card balances can have adverse effects. The credit utilisation ratio, which compares your total credit card debt to your credit limit, plays a crucial role. A high ratio can lower your credit score, signalling to issuers that you might be a financial risk.

Carrying substantial balances could imply financial challenges, potentially leading to late or missed payments. Since payment history contributes 35% to your credit score, it's essential to manage outstanding balances wisely to maintain a favourable credit score.

The bottom line

Having high credit card balances can hurt your credit score. This might make it harder to get new credit or lead to higher interest rates. Understanding your outstanding balance is crucial to using your Kotak credit card effectively. With this knowledge and the right practices, you can maintain a healthy credit score and avoid potential financial setbacks in the future.