what is average outstanding balance 
an average outstanding balance is the unpaid interest bearing balance of a loan or loan portfolio averaged over a period of time usually one month the average outstanding balance can refer to any term installment revolving or credit card debt on which interest is charged it may also be an average measure of a borrower s total outstanding balances over a period of time average outstanding balance can be contrasted with average collected balance which is that part of the loan that has been repaid over the same period understanding average outstanding balanceaverage outstanding balances can be important for several reasons lenders often have a portfolio of many loans which need to be assessed in aggregate in terms of risk and profitability banks use the average outstanding balance to determine the amount of interest they pay each month to their account holders or charge to their borrowers if a bank has a large outstanding balance on its lending portfolio it could indicate that they are having trouble collecting on their loans and may be a signal for future financial stress many credit card companies also use an average daily outstanding balance method for calculating interest applied to a revolving credit loan particularly credit cards credit card users accumulate outstanding balances as they make purchases throughout the month an average daily balance method allows a credit card company to charge slightly higher interest that takes into consideration a cardholder s balances throughout the past days in a period and not just at the closing date for borrowers credit rating agencies will review a consumer s outstanding balances on their credit cards as part of determining a fico credit score borrowers should show restraint by keeping their credit card balances well below their limits maxing out credit cards paying late and applying for new credit increases one s outstanding balances and can lower fico scores interest on average outstanding balanceswith average daily outstanding balance calculations the creditor may take an average of the balances over the past 30 days and assess interest on a daily basis commonly average daily balance interest is a product of the average daily balances over a statement cycle with interest assessed on a cumulative daily basis at the end of the period regardless the daily periodic rate is the annual percentage rate apr divided by 365 if interest is assessed cumulatively at the end of a cycle it would only be assessed based on the number of days in that cycle other average methodologies also exist for example a simple average may be used between a beginning and ending date by dividing the beginning balance plus the ending balance by two and then assessing interest based on a monthly rate credit cards will provide their interest methodology in the cardholder agreement some companies may provide details on interest calculations and average balances in their monthly statements because the outstanding balance is an average the period of time over which the average is computed will affect the balance amount consumer creditoutstanding balances are reported by credit providers to credit reporting agencies each month credit issuers typically report a borrower s total outstanding balance at the time the report is provided some credit issuers may report outstanding balances at the time a statement is issued while others choose to report data on a specific day each month balances are reported on all types of revolving and non revolving debt with outstanding balances credit issuers also report delinquent payments beginning at 60 days past due timeliness of payments and outstanding balances are the top factors that affect a borrower s credit score experts say borrowers should strive to keep their total outstanding balances below 30 borrowers using more than 30 of total available debt outstanding can easily improve their credit score from month to month by making larger payments that reduce their total outstanding balance 