What Is a Closing Balance and How Can It Affect Your Credit?

The closing balance is the amount of money in your account at the end of a certain period. For a debit card, the closing balance refers to the bank account the debit card is linked to. For a credit card, the closing balance is the amount owed at the end of a billing cycle.

On a credit card, the closing balance is often called the statement balance. That amount becomes your opening balance for the next billing cycle. Payments, credits and new purchases made after the closing date are counted toward the new cycle's balance.

Key Takeaways

• A closing balance is your statement balance. It's the total you owe when a billing cycle ends, and it rolls over to become your opening balance for the next cycle.

• A simple formula sets the number. Your closing balance is your opening balance plus new purchases, interest and fees, minus any payments and credits posted during the cycle.

• Your closing balance can shape your credit. Issuers generally report it to the credit bureaus around the end of the billing cycle, so it can drive your credit utilization even after you pay the card off.

• Keeping utilization under 30% helps. The CFPB says experts advise using no more than 30% of your total credit limit, and a lower ratio is generally better for your score.

• Paying before the closing date lowers what's reported. A payment that posts before the cycle closes shrinks the balance the bureaus see, though it doesn't guarantee an instant score boost.

• Bank accounts have a closing balance too. It's the balance at the end of the statement period, and a negative figure can signal an overdraft.

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How Is a Closing Balance Calculated?

Your closing balance is the amount owed on your credit card. Your billing cycle can begin and end at any point during the month. It doesn't have to run from the first of the month to the end. Still, the billing cycles generally keep the same scheduled closing date.

Your closing balance starts with the opening balance, adds new purchases, interest and applicable fees, and subtracts any payments and credits posted during the billing cycle.

Here's an example: You have an opening balance of $500. During your billing cycle, you make $300 in purchases and accrue $10 in interest. You pay $200 before the billing cycle ends. Your closing balance would be $610 — that's your $500 opening balance plus $310 that you've made in purchases and interest accrued, then minus your $200 payment.

What Is a Closing Balance in a Bank Account?

For a bank account, the closing balance is the remaining balance in your account at the end of the statement period.

A bank account's closing balance is usually found at the top of your statement. It differs from your available balance because the available balance may reflect account holds or transactions that haven't yet processed.

Your closing balance in a bank account could also be negative, which means an overdraft has occurred.

To calculate the closing balance in a bank account, start with the opening balance. Add deposits or refunds and subtract withdrawals, purchases and fees. The result is the closing balance.

Do You Pay the Opening Balance or Closing Balance?

With a credit card, the statement balance is the amount you'd pay on or before the due date to avoid incurring interest from previous purchases, if your card has a grace period. Look at the closing balance to determine how much to pay if you plan to pay off your statement balance in full. 

Your opening balance can be the same as your closing balance from the previous cycle. Your closing balance starts with the opening balance, then adds purchases, interest, fees, and subtracts payments and credits posted during the billing cycle.

How Your Closing Balance Affects Your Credit and Finances

The closing balance — also known as the statement balance — is generally what your credit card issuer reports to the credit bureaus. Credit card issuers tend to report balances around the end of the billing cycle, not the payment due date. Your closing balance may affect your credit utilization ratio even if you've paid off your card.

Your credit utilization ratio is the share of available credit you're using. Experts generally recommend keeping your credit utilization ratio down to less than 30% of your total credit limit, according to the Consumer Financial Protection Bureau (CFPB). The lower your credit utilization ratio is, the better it usually is for your credit score.

Why should you pay off your credit card in full? Here are a few reasons:

• Avoid interest: Paying your card off helps avoid interest charges.

• Avoid late fees: Your due date is usually a few days after you receive your monthly statement. Pay at least the minimum amount by the due date so you can avoid late fees.

• Protect your credit score: A good payment history and a low credit utilization ratio are two factors considered in determining your credit score.

• Stick to your budget: If you plan to pay your credit card off each billing cycle, that payment will be included in your budget. This can help encourage you to stick to your budget.

How To Manage and Lower Your Closing Balance

One way to stay on top of your finances is to keep track of your closing balance. It may help you feel in control of your cash flow and make smart money decisions. If you maintain these habits to keep your statement balance low, you can potentially reduce the amount of interest you'd have to pay and keep your credit in good shape.

A few reminders:

• Pay off your balance before the statement closing date.

• Have automatic payments set up — it may help avoid late fees or missing the payment altogether.

• Keep checking your statement for errors.

• Monitor and keep track of your purchases throughout the billing cycle.

Paying off your credit card each month doesn't guarantee an instant boost to your score, but it may be good for your credit health, budget and overall finances if you're consistent with it.

FAQ

Does a closing balance include interest and fees?

Yes, a closing balance on a credit card can include interest and fees that are incurred during your billing cycle, as well as any purchases or other transactions you've made.

What happens if I only pay part of my closing balance?

If you only pay part of the closing balance, the remaining balance gets carried into the next billing cycle. Unpaid balances may incur interest charges, though.

Can a closing balance be negative, and what does that mean?

Yes, a closing balance can be negative. It means that you may have overpaid on the bill or received a refund and so the credit card issuer may owe you.

What's the difference between a closing balance and an available balance?

The closing balance is the total amount you owe on your credit card at the end of a billing cycle. Your available balance is the amount of credit you can use for purchases, and may be different from your closing balance because it reflects pending transactions or holds that haven't been posted.

Key Terms

• Closing balance: The total you owe at the end of a billing cycle, set on your statement's closing date. On a credit card it's also called the statement balance.

• Statement balance: Another name for the closing balance — the amount owed when the cycle ends, and the figure issuers generally report to the credit bureaus.

• Opening balance: What you owe at the start of the current cycle, often carried over from the prior cycle's closing balance.

• Current balance: Your real-time total, including activity posted after the statement closed. It can change daily.

• Available credit: The amount you can still spend, equal to your credit limit minus your current balance.

• Credit utilization ratio: The share of your available credit you're using, found by dividing your balances by your credit limits. The CFPB says experts advise keeping it under 30%.

• Billing cycle: The period between two statements, typically 28 to 31 days, after which your closing balance is set.

• Grace period: The window between your closing date and due date when paying the full closing balance lets you avoid interest on new purchases.

Sources

• CFPB. Credit score myths that might be holding you back.

• CFPB. How do I get and keep a good credit score?

• MyFICO. What is amounts owed?

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