How Is My Credit Card Balance Negative?
Understand why your credit card balance might be negative. Learn what this credit means and your options for managing it.
A negative balance on a credit card means the credit card company owes the cardholder money, rather than the cardholder owing the company. This article clarifies how a negative balance occurs and outlines options for managing it.
Common Causes of a Negative Balance
A common cause for a negative balance is a refund for a returned purchase. When an item is returned, the merchant credits the account. If the original charge was already paid, or the refund exceeds any outstanding balance, the account will reflect a negative balance.
Overpayments are another common cause, occurring when a payment exceeds the outstanding balance, accidentally or intentionally. For instance, paying a $200 bill with $250 results in a -$50 balance. This can happen if a manual payment overlaps with an automated one, or if a payment is made as a new credit posts.
Promotional credits or rewards can also create a negative balance. Many reward cards allow redemption of cashback or points as statement credits. If applied to a low or zero balance, these credits can make the account negative. Sign-up bonuses or other issuer promotions may also appear as statement credits, potentially creating a negative balance.
Finally, resolving billing errors or disputed charges can result in a negative balance. If a cardholder disputes a transaction, or the issuer corrects an overcharge or waives a fee, the credit posts to the account. If the account was paid in full or the credit is substantial, this adjustment can lead to a negative balance.
Understanding a Credit Card Account Credit
A negative balance, also called a credit balance, means the credit card issuer holds funds belonging to the cardholder. It indicates a surplus in the account, functioning as a prepayment for future transactions.
This credit balance allows the cardholder to make new purchases without immediately owing additional funds. For example, a -$50 balance means $50 is available to spend before new charges accrue. Unlike a savings account, a credit balance on a credit card typically does not earn interest.
While a positive balance represents debt owed to the issuer that may incur interest, a negative balance is the opposite. It usually reflects positive financial management, often resulting from paying off the balance or receiving credits. This situation does not negatively impact a credit score; instead, it can temporarily lower the credit utilization ratio, which is generally viewed favorably.
Options for Using a Negative Balance
Cardholders have several ways to utilize a negative balance. The simplest is to continue using the credit card for new purchases. Any new charges will be offset by the existing credit until it is depleted and the balance returns to zero or becomes positive. This method requires no direct action beyond regular spending.
Alternatively, a cardholder can request a refund check. Contact the issuer’s customer service, by phone or online, to initiate this. Issuers are generally required to refund credit balances over $1 within seven business days of a written request. Physical checks typically take five to 14 business days to arrive.
Some credit card issuers may offer direct deposit of the credit balance into a linked bank account. This can be a faster way to access funds than waiting for a physical check. Availability depends on the specific issuer’s policies and the cardholder’s banking setup.
If a cardholder has multiple accounts with the same issuer, they might be able to transfer the negative balance to another credit card account to offset an existing debt. This allows consolidation of funds and reduction of a balance on a different card within the same financial institution. However, this option is not universally available and depends on the issuer’s internal policies.
Managing Your Negative Balance
Regularly reviewing credit card statements is important to understand the origin of any negative balance and ensure its accuracy. Statements detail all transactions and credits, providing transparency into how the balance was created. If the negative balance appears unexpected or its source is unclear, contact the card issuer’s customer service promptly for clarification.
If a cardholder decides to close an account with a negative balance, the issuer is typically obligated to refund the money before officially closing the account. However, delays can occur if a refund posts as the account is being closed, potentially requiring the cardholder to contact the issuer to retrieve funds. The cardholder remains responsible for any outstanding debt if the balance is positive when closing an account.
Very old or unclaimed negative balances might eventually be turned over to state unclaimed property divisions. This process, governed by state laws, aims to reunite individuals with their forgotten funds. To avoid this, resolve any negative balance in a timely manner by spending it or requesting a refund.
A negative balance without a clear reason should prompt caution. While often a billing error, a significantly large negative balance could trigger fraud alerts, potentially signaling refund fraud or money laundering attempts. In such cases, the issuer might temporarily freeze the account or require verification, necessitating direct communication to resolve the situation.