What Does Having a Negative Credit Balance Mean?

A credit balance represents the total amount of money a cardholder owes to their credit card company. While a typical credit card balance signifies debt, a “negative” credit balance indicates a different financial standing.

What a Negative Credit Balance Means

A negative credit balance on a credit card signifies that the credit card issuer owes money to the cardholder, rather than the cardholder owing the issuer. This situation is generally favorable for the consumer. When a credit card statement shows a negative balance, it means a credit has been applied to the account that exceeds the amount owed. For instance, if a card has a $5,000 limit and a -$100 balance, the cardholder now has $5,100 in available credit. This temporary increase in available credit can lower a cardholder’s credit utilization ratio, which may positively impact their credit score. The cardholder can use this credit for future purchases without making a payment until the negative balance is spent down.

Common Reasons for a Negative Credit Balance

One frequent cause is overpayment, which occurs when a cardholder pays more than the outstanding balance. This might happen unintentionally, such as entering an incorrect amount or making a manual payment close to an automated payment.

Another common reason is receiving a refund for returned items. If a purchase made on the credit card is returned after the balance has already been paid, the refund credit will result in a negative balance. Statement credits from rewards programs, promotional offers, or the reversal of a fraudulent charge can also lead to a negative balance if they exceed the current amount owed. Waived fees, such as annual or late fees, can also contribute to a negative balance if they are credited back after a payment has been made that included those charges.

What to Do with a Negative Credit Balance

When a negative credit balance appears on a statement, verifying the amount and understanding its origin is a first step. Cardholders can contact their credit card issuer’s customer service for an explanation if the reason for the negative balance is unclear.

The most straightforward approach is to continue using the credit card for new purchases; these transactions will draw from the negative balance until it reaches zero or becomes a positive balance. Alternatively, cardholders can request a refund of the negative balance from their credit card company. This refund can be issued as a check, money order, or direct deposit to a linked bank account. Federal regulations, such as the Truth in Lending Act, require card issuers to refund any negative balance over $1 within seven business days of a written request. If the negative balance remains unaddressed for six months, the issuer is required to make efforts to return the funds to the cardholder.

Negative Balances on Different Account Types

While a negative balance on a credit card means money owed to the cardholder, a negative balance in a bank checking account carries vastly different implications. A negative checking account balance, known as an overdraft, means that the account holder has spent more money than is available in their account.

Banks may allow transactions to go through that overdraw an account, but this results in overdraft fees, which can range from $20 to $40 per transaction. These fees can accumulate quickly if multiple transactions occur while the account is overdrawn. Unlike a credit card negative balance, which represents a credit, an overdraft in a checking account is a short-term loan from the bank, incurring significant fees and potentially impacting the ability to open future bank accounts if not resolved.