What Happens if You Have a Negative Balance on a Credit Card?

Defining a Negative Balance

A negative balance on a credit card statement indicates that the credit card issuer owes money to the cardholder, rather than the cardholder owing money to the issuer. This situation arises when the total amount of payments and credits applied to an account exceeds the outstanding purchases and charges. Unlike a typical positive balance, which represents a debt to be repaid, a negative balance is essentially a credit, meaning the cardholder has funds available on their account. This credit balance functions similarly to having a prepaid amount on the card, effectively reducing any future charges until the credit is fully utilized.

Why a Negative Balance Occurs

Several common scenarios can lead to a credit card account displaying a negative balance. One frequent cause is an overpayment, where a cardholder submits a payment amount greater than their current outstanding balance. For example, if a statement shows a $300 balance due, but a payment of $350 is made, the account will then reflect a negative balance of $50.

Another common reason for a negative balance involves refunds or returns. When a cardholder returns an item purchased with the credit card, and the refund amount posted to the account surpasses the existing balance, a negative balance will occur. For instance, if a card has a $20 balance and a $100 return is processed, the account will show a negative balance of $80.

Additionally, the application of cashback rewards or statement credits can also create a negative balance. If accumulated rewards are redeemed, or a promotional credit is applied to an account that has a zero or minimal outstanding balance, the credit can result in the cardholder having a credit balance.

Credit Card Issuer Actions

When a credit card account holds a negative balance, the issuer generally applies this credit toward any future purchases made on the card. This process is automatic; subsequent transactions will first draw from the existing credit balance until it is depleted before new debt accrues. This ensures the overpayment or credit is utilized efficiently.

Should a negative balance persist for an extended period, typically around six months, credit card issuers are often required by unclaimed property laws to take further action. These laws generally mandate that the financial institution attempt to return the funds to the cardholder. This might involve issuing a refund check or initiating a direct deposit to a linked bank account, even if the cardholder has not explicitly requested it.

Your Options for a Negative Balance

Cardholders have clear options for managing a negative credit card balance. The simplest approach is to continue using the card for new purchases. The existing negative balance will automatically offset these future charges, effectively acting as a credit until it reaches zero. This method requires no direct action.

Alternatively, cardholders can request a direct refund of the negative balance from their credit card company. This typically involves contacting customer service by phone or through the issuer’s online portal. Upon request, the credit card company can issue the funds back to the cardholder, commonly through a check mailed to the billing address or via a direct deposit to a bank account linked to the cardholder’s profile.