What Is a Negative Balance on a Credit Card?
Learn why your credit card might owe you money and what to do with it.
What Is a Negative Balance on a Credit Card?
A negative balance on a credit card indicates that the credit card company owes money to the cardholder, rather than the cardholder owing the company. This situation often arises when more funds are credited to an account than are currently owed. While the term “negative” might sound concerning, it is generally a favorable position for the cardholder, meaning they have a credit with the issuer that can be used or refunded.
Understanding a Negative Credit Card Balance
A negative balance means the credit card issuer has received funds exceeding the outstanding balance on the account. This effectively creates a credit, appearing with a minus sign (e.g., -$50.00) on the statement or online account. In essence, it reverses the typical creditor-debtor relationship for that specific amount, making the issuer owe money to the cardholder. Unlike traditional credit card debt, a negative balance does not negatively impact a credit score; it simply reflects extra money applied to the account.
Common Reasons for a Negative Balance
Several common scenarios can lead to a negative balance on a credit card. One frequent cause is an overpayment, which occurs when a cardholder pays more than the current amount due. This can happen accidentally, such as when manually entering a payment amount greater than the balance, or if an automated payment processes shortly after a manual one.
Refunds for returned purchases are another primary reason. If an item bought with the credit card is returned after the purchase has been paid off, the refunded amount is credited back to the card, potentially resulting in a negative balance. For example, if a card has a zero balance and a $100 refund is processed, the balance will become -$100.
Statement credits also contribute to negative balances. These credits can stem from various sources, including promotional offers, rewards redemptions, or adjustments for disputed charges or waived fees. When these credits are applied to an account with little or no outstanding balance, they can push the account into a negative state.
Managing a Negative Balance
When a negative balance appears, cardholders have several options for managing these funds. The most common approach is to simply allow the credit to be applied to future purchases. Any new transactions made on the card will draw from this negative balance first, effectively reducing it until the account reaches a zero or positive balance. This method requires no direct action from the cardholder and is often the simplest way to utilize the funds.
Alternatively, a cardholder can request a refund from the credit card issuer. This typically involves contacting customer service to arrange for a check or direct deposit to a linked bank account. While the Truth in Lending Act generally requires issuers to refund negative balances over $1 upon request, processing time for such refunds can vary, often taking between five to fourteen business days.
Cardholders can also choose to leave the negative balance on the account as a credit for an extended period. Credit card companies generally do not pay interest on these credit balances. If a negative balance remains unused for a significant time, typically around six months, credit card issuers may be required by banking regulations to attempt to issue a refund automatically.