What Does It Mean When Your Credit Card Has a Negative Balance?

A negative balance on a credit card statement indicates that the credit card company owes the cardholder money, rather than the cardholder owing the company. This situation is often displayed with a minus sign before the dollar amount on the statement. It essentially means the cardholder has a credit with the issuer, which can be used or refunded. While it might seem unusual, it is generally a favorable position for the consumer.

Causes of a Negative Balance

A negative balance can result from several common scenarios. One frequent cause is an overpayment, which occurs when a cardholder pays more than the outstanding balance. This can happen accidentally, such as when making a manual payment after an automatic payment has already been processed, or if an incorrect amount is entered.

Another common reason for a negative balance is a refund for a returned item. When a purchase made with the credit card is returned to a merchant, and the refund is processed after the original balance has been paid off, the refunded amount results in a credit on the account.

Statement credits also frequently lead to negative balances. These can include various types of credits, such as promotional offers, redemptions of rewards points applied as a statement credit, or adjustments made by the card issuer, such as waived fees.

Finally, a negative balance can result from disputed charges that are resolved in the cardholder’s favor. If a cardholder successfully disputes a transaction, such as a fraudulent charge, and that amount is removed or credited back to the account after the balance has been paid, it creates a negative balance.

Using Your Negative Balance

When a credit card account shows a negative balance, the credit can apply to future purchases. The credit card company will typically use this existing credit to offset new transactions made on the card, effectively reducing or eliminating the need for payment until the credit is fully utilized. This process often happens automatically as you continue to use the card for everyday spending.

Alternatively, a cardholder can request a direct refund of the negative balance from the credit card issuer. This provides the cardholder with cash or a direct deposit to their bank account. To initiate a refund, contacting the card issuer through their customer service line or online portal is generally required, and the refund might be issued via check or electronic transfer within a few business days.

A negative balance on a credit card does not earn interest for the cardholder. This amount does not accrue interest as it would in a savings account. Therefore, if the negative balance is substantial and you do not plan to use the card for purchases soon, requesting a refund might be a more beneficial option.

Important Considerations for Negative Balances

A negative balance on a credit card does not negatively impact a cardholder’s credit score. Credit reporting models generally treat a negative balance as equivalent to a zero balance, which means it will not harm your credit standing.

Cardholders should regularly monitor their credit card statements to ensure that negative balances are accurately reflected and applied as expected. If the negative balance seems incorrect or has been outstanding for an extended period, reaching out to customer service is advisable.

For large negative balances, it is advisable to contact the card issuer to discuss refund options rather than leaving a significant credit on the account indefinitely. The Truth in Lending Act requires card issuers to refund any negative balance upon request.

A negative balance itself does not expire. However, certain promotional credits or rewards applied as a statement credit might have specific terms or conditions regarding their use or expiration. Review the terms associated with any specific credits to understand if there are any time limits for their utilization.