Why Is My Available Credit Negative?
Is your credit card showing negative available credit? Learn what this means, its causes, and effective ways to understand and resolve this financial anomaly.
Understanding Negative Available Credit
Available credit on a credit card represents the amount a cardholder has remaining to spend from their assigned credit limit. This figure is calculated by subtracting your current outstanding balance from your total credit limit. For instance, if a credit card has a $5,000 limit and a $1,000 balance, the available credit would be $4,000. This amount fluctuates as new purchases reduce it and payments increase it.
When available credit appears as a negative number, it indicates the credit card balance has surpassed the established credit limit, meaning more credit has been used than initially approved. This differs from a negative balance, which implies the credit card company owes the cardholder money, typically due to an overpayment or a refund.
Reasons for Negative Available Credit
Several factors can lead to a credit card account having negative available credit.
One common reason is exceeding the credit limit through purchases. This can occur with a single large transaction or through a series of smaller purchases that accumulate over time. Even if individual transactions are small, their combined effect can lead to an over-limit situation if spending is not closely monitored.
Fees and interest charges also contribute to a negative available credit amount. Annual fees, late payment fees, or over-limit fees, along with accrued interest on the outstanding balance, are automatically added to the account. If a card’s balance is already near its limit, the addition of these charges can cause it to exceed the limit.
Processing delays for payments or new transactions can sometimes create a temporary negative available credit status. A payment might not yet be fully processed and reflected in the available credit amount, while new charges continue to post to the account. Similarly, if an authorized user makes a purchase that pushes the account over the limit before the primary cardholder is aware or a recent payment has cleared, negative available credit can appear. Administrative or system errors by the credit card issuer can also lead to an incorrect display.
Implications of Negative Available Credit
Negative available credit can have several financial consequences.
One consequence is over-limit fees. Under federal law, if a cardholder has opted into over-limit protection, issuers can charge a fee when the balance exceeds the credit limit. This fee is capped at $25 for the first occurrence and $35 for a second instance within six months. The fee cannot exceed the amount by which the limit was surpassed. If a cardholder has not opted in, transactions that would cause the account to go over the limit are generally declined.
Negative available credit also impacts a cardholder’s credit score, primarily through the credit utilization ratio. This ratio compares the amount of credit used to the total available credit and accounts for approximately 30% of a FICO credit score. When a balance exceeds the limit, the credit utilization ratio can go above 100%, signaling to lenders that the cardholder may be overextended financially. A high ratio can lead to a significant decrease in credit scores, potentially affecting future borrowing opportunities.
Credit card issuers may also impose account restrictions. They can decline future transactions until the balance is brought below the limit. In persistent situations, the issuer might suspend the account, reduce the credit limit, or even increase the annual percentage rate (APR) on the outstanding balance, making it more expensive to repay the debt.
Steps to Resolve and Prevent
To resolve and prevent negative available credit, take prompt action.
Begin by thoroughly reviewing your credit card statement or online account activity. This helps identify recent transactions, fees, or interest charges that pushed the balance over the limit.
Next, contact your credit card issuer directly. Discuss the situation with them, especially if the cause is unclear or you suspect an error. The issuer can clarify specific charges and explain their policies.
Making a payment to bring the balance below the credit limit is a crucial step. Pay more than just the minimum due to reduce the principal faster and avoid further interest accumulation. Consider making multiple, smaller payments throughout the billing cycle, particularly if you anticipate nearing your limit, as this can help keep your utilization low.
To prevent future occurrences, actively monitor your spending and set up account alerts. Many credit card issuers offer free services like text or email alerts that notify you when your balance approaches your credit limit, or when large transactions occur. These alerts provide real-time updates, allowing for timely adjustments to spending habits.
It is also beneficial to understand your credit limit and adjust your spending accordingly. While requesting a credit limit increase might seem like a solution, it should be approached with caution, as it does not address underlying spending issues. Instead, focus on managing current spending within your established limit to maintain healthy credit utilization and avoid unnecessary fees.