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Understanding a negative balance on a credit card

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Have you ever opened your credit card bill, be it paper or digital, and been greeted with a negative balance?

For a brief moment, it feels as though the stars have aligned: for once, a credit card company owes you money.

It’s a rare occurrence, a fleeting relief, but it happens more often than you think. Understanding a negative balance on your credit card can help you in the long run, since it impacts your future buying power.

What does a negative balance on a credit card mean?

A negative balance on your credit card is actually a positive thing. It means you’ve overpaid and the credit card company now owes you money.

Similar to when you overpay a utility bill and see that little “CR” credit abbreviation at the bottom of your bill, a negative credit card balance means you’re entitled to a statement credit or a refund (more on that later).

Say you pay your $150 hydro bill each month using your credit card, but you’re anxious about underpaying. If you pay your utility provider $155 (and have no other credit card charges), in a few days once the payment posts, you’ll see a negative balance of -$5. You could charge $5 to your card the next day and not have to worry about paying it back because in essence, you’ve already prepaid that amount. Charging another $5 would only bring your balance back to $0.

How can negative balances on a credit card happen?

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You overpaid your bill: It happens to the best of us. We’re rushing, we have one little mis-click and suddenly our credit card provider got a little more than it was owed. It’s surprisingly easy to overpay your credit card, especially if you’ve got multiple cards and choose the wrong one by accident when you’re in your banking app, for instance. In that case, you will end up with a negative balance and a statement credit.

You made a return: If you buy something with your credit card and then return it within the allotted period set by your merchant, that return could drive your credit card balance below zero.

You had a fraudulent purchase reversed: It’s not hard to be duped by fraudsters. One of their most frequent targets is often your credit card. If you’ve had to dispute a charge, and it’s taken a while to resolve, that correction could turn your previous credit card balance into a negative one

You redeemed too many rewards: Who doesn’t like free money? Or, more accurately, money you already spent that is being returned to you in the form of a statement credit? Regardless, if those reward points turn into a payback option and your current credit card balance is already at zero then it will show up as a negative balance.

Does a negative credit balance affect my credit score?

A negative credit card balance on your credit card is value-neutral in terms of your credit score. While a negative balance doesn’t inherently improve your score, it does mean you can rest assured that you’ve met your credit obligations for that given time period.

Keep in mind that for a closed credit card account with a negative balance, the credit card issuer still has to keep trying to reach you to provide you your refund, no matter how small it is. If you’re going to close a credit card, even if it’s just for convenience’s sake, it’s best to zero balance it before you do.

How to get your money back if you overpay your credit card

There are two main ways to get your money back if you overpay your credit card.

  1. Enjoy the statement credit on your next bill. This is the most common, time-efficient, and easiest way to deal with a negative balance. You can mop up that “extra” credit with new purchases because, in a way, you have pre-paid for part of your expenses. It also means that, while your credit limit won’t have actually increased, you have a little bit of extra wiggle room in available credit next month.
  2. Contact your card issuer for a credit balance refund. This can be done online or via phone, and these refunds usually come by mail. While asking for a refund may be worth it if there was a massive error, or if you’re really short on cash, it’s usually easier to let your credit roll over.

Other ways to deal with a negative credit card balance

If you’re repeatedly seeing a negative credit card balance and are always unclear as to why, it might be wise to look at your financial routine. Learning how to budget, for instance, will help you anticipate your income and household expenses each month, as well as track your credit card balance.

When it makes sense to intentionally overpay your credit card

Aside from simply trying to make sure you don’t underpay your credit card bill, there are multiple reasons why you might want to intentionally send your credit card company a little something extra.

The most common reason is to evade an unhelpfully low credit limit. Overpaying your credit card increases the available room on your credit card. An intentional overpayment before a big purchase can help you slot that expense onto your credit card rather than having to go through other means.

Frequently asked questions

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