Average Outstanding Balance

What it is

The average outstanding balance is the unpaid, interest-bearing amount on a loan or credit account averaged over a specific period (commonly a monthly statement cycle). It applies to term loans, installment loans, lines of credit, and revolving accounts such as credit cards.

Why it matters

• Lenders use average outstanding balances to estimate interest income, portfolio risk, and loan performance.
• Creditors often calculate interest on revolving accounts using average-balance methods, which can yield different finance charges than using only the balance at statement close.
• Credit bureaus receive issuers’ reported balances each month; higher outstanding balances can raise utilization and lower credit scores.
• Persistently large outstanding balances may signal repayment stress for borrowers and increased credit risk for lenders.

How interest is calculated

Common methods:
* Average daily balance (most credit cards): Sum each day’s balance for the cycle, divide by the number of days, then apply the daily periodic rate.
* Formula: Average daily balance = (Sum of daily balances) / (Number of days in cycle)
* Interest = Average daily balance × (APR / 365) × (Number of days in cycle)
* Simple (arithmetic) average for monthly-pay loans: (Beginning balance + Ending balance) / 2, then apply the monthly rate.
* Example: Beginning mortgage balance $100,000 and ending balance $99,000 → Average = ($100,000 + $99,000) / 2 = $99,500

Cardholder agreements and monthly statements disclose which method a creditor uses.

Reporting and credit-score impact

• Lenders typically report the outstanding balance at a specific date each month (statement date or another reporting date).
• Reported balances affect credit utilization—the share of available credit being used—which is a major factor in FICO-style scores.
• Financial advisors commonly recommend keeping utilization below about 30% of total available credit; lower utilization generally helps scores.
• Delinquent payments (starting at 60 days past due) are also reported and can have long-lasting negative effects.

Where to find your outstanding balance

Log into your bank or card account, check the most recent statement, or view the balance displayed in your lender’s app or website.

Data snapshot

Recent Federal Reserve data showed that U.S. credit card outstanding balances rose by $27 billion in Q2 2024 to a total of $1.14 trillion.

Practical tips to manage outstanding balances

• Pay credit cards in full each month to avoid interest.
• Make larger or more frequent payments to lower average daily balances during a cycle.
• Keep overall utilization low by paying down revolving debt and avoiding unnecessary new credit.
• Review statements to confirm which interest calculation method applies to your account.

Quick FAQs

Q: What’s the difference between outstanding balance and outstanding principal?
A: Outstanding balance is the total amount owed (principal + accrued interest/fees). Outstanding principal refers only to the remaining original loan amount excluding interest and fees.

Q: How can I lower my reported balance quickly?
A: Make payments before the issuer’s reporting date or make multiple payments during the billing cycle to reduce your average daily balance.

Q: Do average balances always affect credit scores?
A: Not directly in all scoring models, but reported balances (and resulting utilization) are a primary input in most credit scores. Rapid changes in balances may be subject to reporting lags.