What Happens if I Close a Credit Card With a Negative Balance?

When you decide to close a credit card account, you might encounter a situation commonly referred to as a “negative balance.” This term can be misleading, as it doesn’t indicate debt, but rather an overpayment or a credit balance on your account. This means the credit card issuer actually owes you money. Understanding how to manage this credit balance and the broader implications of closing such an account is important for your financial well-being.

Understanding a Credit Balance

A “negative balance” on a credit card is more accurately termed a credit balance, signifying that the cardholder has more funds on the account than they owe to the issuer. This situation arises from various common scenarios.

For instance, an accidental overpayment of your bill can create a credit balance. Additionally, refunds for returned merchandise often result in a credit balance. Promotional credits or rewards applied to your account can also lead to a credit balance.

A credit balance means the credit card company holds funds that belong to you. While some cardholders might choose to leave this balance on the account to offset future purchases, it is your money, and you have the right to request its return.

Recovering Your Credit

When closing a credit card account with a credit balance, the card issuer is obligated to return those funds to you. Federal regulations require card issuers to promptly refund overpayments and other amounts owed. If you submit a written request for a refund, the issuer must send the money within seven business days of receiving your request.

Contacting the credit card company’s customer service is key to confirm the exact credit balance and request a refund. Common methods for receiving your funds include a check mailed to your address. Some issuers may also offer direct deposit to a linked bank account.

If a credit balance remains on your account for more than six months, the card issuer must make a good faith effort to refund it, even without a specific request. Most credit card refunds appear on your statement or balance within three to fourteen business days.

Impact on Your Credit Score

Closing a credit card account, even one with a credit balance, can influence your credit score through several factors. Your credit utilization ratio, which is the amount of credit you are using compared to your total available credit, is a factor. When you close an account, especially one with a high credit limit, your total available credit decreases, potentially increasing your utilization ratio if you carry balances on other cards. A higher utilization ratio, generally above 30%, can negatively affect your score.

The length of your credit history also factors into credit scoring models. Closing an older account can shorten the average age of all your accounts, which might cause a temporary dip in your score.

However, closed accounts in good standing typically remain on your credit report for up to 10 years and continue to be factored into some credit score calculations during that time. A credit balance does not alter these impacts; the effects are tied to the reduction in available credit and the average age of accounts.