The total unpaid balance on a credit card denotes an outstanding amount. This comprises all interests, charges made, purchases, etc. However, the outstanding balance is different from the statement balance.
While the statement balance is the sum of money owed at the end of a billing cycle, the outstanding balance includes recent transactions made after the statement was issued. Maintaining a lower outstanding balance will help keep a good credit score in the long run.
Note these details to manage your finances and avoid unnecessary accruals effectively. Understanding "What is Outstanding Amount in Credit Card" or outstanding balance meaning is essential for effective financial management.
What is outstanding amount in Credit Card?
Outstanding amount in credit cards refers to the total amounts you owe to your issuer or lending institutions at any time. It’s the current amount still owed, which includes purchases made online, cash advances, dining expenses, and purchases made at shopping malls. It also includes other charges, such as annual fees payable or late payment fees minus any payments or credits to the account.
For example, if you used your credit card for a purchase worth Rs. 30,000 monthly and paid Rs. 10,000, the remaining amount would be your outstanding balance, which would be Rs. 20,000. You will need to clear this amount to bring your balance to zero. The outstanding balance increases with each new charge and decreases when you make successful payments. Everything is reflected in the cardholder’s account.
Difference between outstanding & statement balance
Statement balance is the amount you owe by the end of a billing cycle and includes all transactions and credit card interest rates charges posted during this period. On the other hand, the outstanding balance meaning is the statement balance plus any new transactions that have not yet been added to your recent bill.
For example, if you used your credit card to buy things worth Rs. 40,000, you will find an outstanding balance of Rs. 40,000 when you check the balance on your credit card app. If you make a Rs. 20,000 payment, the amount you owe will be reduced. Your liability will be Rs. 20,000, which is the remaining balance and part of your outstanding balance.
In short, the total amount you owe after making a payment is the remaining balance, and the total amount you owe at any given point is the outstanding balance. These are beneficial terms for tracking your 811 credit card debt and paying it off effectively.
How much outstanding balance should you pay?
Paying the total amount due on the 811 credit card at the end of every billing cycle is wise. It does not attract credit card interest rates charged based on the amount spent on the credit cards. But, it also allows you to pay more than the amount reflected in the statement, up to the total amount you owe.
Repaying more than your statement balance is good. It helps you pay your expenses faster. It also avoids incurring long-term credit card debts, which can put you under financial pressure.
Making these additional payments lets you manage your expenditures so you do not fall short of money. Understanding the outstanding amount meaning in credit card usage is essential to maintaining financial health.
How does outstanding balance affect credit score?
An outstanding balance on your credit card against FD plays a significant role in determining your credit score. Here’s how:
1. Unpaid debt lower scores
There are many factors that determine this score, but your current credit makes up about a third of it. Higher outstanding balances hurt your CIBIL score because the bureau reports their information. If a person carries a high balance, it denotes they may not be able to pay off the amount. This can reduce your chances of a loan or credit line approval because lending institutions regard you as high risk.
2. Delayed EMI payments reduces CIBIL
Failing or delaying the due EMI (Equated Monthly Instalment) payment can have a deep impact on your credit score. Payment history is one of the most important parts of the credit score. Thus, even if a customer misses just one payment, it has an adverse effect. However, timely repayment of these EMIs helps maintain a good credit score. Use a credit card EMI calculator to make the right financial decision.
3. Excessive credit utilisation negatively affects CIBIL score
This is calculated by dividing the credit card balance by the limit the issuer allows. This ratio should be kept below 30% for the credit status of any organisation. High utilisation indicates the borrower relies heavily on credit, which might imply they cannot pay their obligations. You can keep it low by making frequent small payments and not charging hefty amounts on credit cards. For instance, if your credit card against FD’s limit is Rs. 1,00,000, you should ensure the outstanding balance never exceeds Rs. 30,000. This proves to the lending institutions you understand the use of credit and can afford expenses even when you have bills.
4. Not having a credit history is worse
The absence of records in managing your debts means the lending institutions cannot determine repayment capability. Being solvent and having a diverse credit history and proven debts, it is clear such people are more likely to be granted loans. This shows lending institutions can entrust you with different credit responsibilities without much risk of default.
5. Improve credit score with low debt to income ratio
The debt-to-income percentage analyses one’s debts against one's monthly salary. A lower number suggests you have sufficient income to pay off your debts, which improves your credit score. For instance, if you receive Rs. 50,000 monthly as income, and your total debt amounts to Rs.15,000 per month, the debt-to-income ratio is 30%. Creditors are always eager to approve loan requests from applicants who can show they have considerable income.
Conclusion
It is important to know how much you owe on a credit card. The outstanding balance gives you the complete picture. Maintaining a record of your outstanding balance is important so you don’t get charged for going over due dates.
You can get debt-free sooner if you can pay more than the minimum payment required. Learning about outstanding balance will help you balance and control your income and ensure you are not prey to out-of-control debts.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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