Average Outstanding Balance - Explained
What is the Average Outstanding Balance?
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Table of ContentsWhat is an Average Outstanding Balance?Calculate the Average Outstanding BalanceCredit Score Factors
What is an Average Outstanding Balance?
The average outstanding balance is a calculation used in short-term, revolving loans, such as credit credits. A simple average balance is calculated by adding a beginning and ending balance and dividing the total by 2.
The weighted average balance takes into account the amount of time during the measurement period a balance was at a given point.
Calculate the Average Outstanding Balance
The average balance is most commonly used by credit card firms when measuring finance charges using a weighted medium-scale balance. First, the average daily balance is estimated and then multiplied by the correct rate of interest. One of the factors present in the credit score of a consumer is the average outstanding balance on his loans and credit cards. Monthly reports on the average outstanding balances on active accounts in addition to the past due amounts are usually given to credit agencies.
Credit Score Factors
Credit companies report unpaid balances every month and the total remaining balance of a borrower to credit reporting agencies. Two of the factors which affect the credit score of a borrower are the outstanding balances and how quickly debts are repaid. A decrease in the total outstanding balances of a debtor will lead to a corresponding increase in his credit score.