Negative Balance on a Credit Card

What Is a Negative Balance on a Credit Card?

People have had negative balances owing to canceled indoor eating, vacation arrangements, football games, and other activities because of the current epidemic. This has been more common than ever in the last couple of years. When your credit card company owes you money, it shows up as a negative account balance on your statement. To make it simpler, you have a negative balance if your balance falls below zero.

An example of this is if you buy something with the card and later return that item, where you then are issued a credit back to your account. Imagine you purchased a $20 dress. You returned the dress but had already paid your credit card company. And the seller credits back $20 to your account, which has a zero balance. Now, your account balance is – $20.

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Is It Bad Having a Negative Balance? How Bad?

To begin with, carrying a negative amount on your credit card is typically safe. And it does not cause you any problems. Although it doesn’t boost your credit score, having a negative amount on a credit card is nonetheless recorded to the credit reporting agencies as a zero. When it comes to establishing or improving your credit, having a negative balance is no better than having none at all.

Even if having a negative balance doesn’t harm your money or credit score, it’s still not the best scenario to be in. It’s difficult to get your money back if you run up a large credit card debt and have a negative balance on your account. It’s in a weird underbelly of the financial system, where it has no effect on your credit score, wealth accumulation, or ability to earn interest.

Your credit card balance should not remain negative for long. Instead, transfer that money to a high-yielding online savings account or a certificate of deposit, and use it to help you achieve your long-term financial objectives.

Reasons Why You Might Have a Negative Credit Card Balance:

It’s probably worth reaching out to your credit card issuer for more insight if you’re confused about how the negative balance got there in the first place. A negative credit card balance can happen for several reasons. Following are some of the most prevalent causes of a negative credit card balance:

You Got a Refund:

If you received a refund but had already paid off your monthly amount because of the purchase, your account will be negative.

You Earned a Statement Credit:

It’s possible that you’ll get more than you bargained for if you use credit card incentives to acquire a statement credit. There’s a chance you’ve cleared your debt without ever thinking about a credit line.

You Overpaid Your Statement Balance:

If you inadvertently overpay your statement balance, you will have a negative balance.

You Have a Fraudulent Charge Removed After Paying the Disputed Amount:

You get the challenged amount refunded to you, and the fraudulent charge is voided. Payment of your balance can lead to a negative balance.

You Have Fees Canceled:

It might result from waived interest rates, yearly fees, or late fees that you’ve previously paid down.

What to Do About a Negative Balance on a Credit Card?

It is not worth worrying to have a negative credit card balance. In reality, there isn’t much of a requirement on your part. To help you relax, here are a few easy steps that will help:

Contact Customer Service:

You can get a refund of your negative amount by calling your credit card company’s customer care department and explaining your situation. You should be able to receive a refund if you explain the problem and ask for your choices. Most credit card companies will be able to send you a refund in the form of a cheque, money order, or direct deposit into your bank account, depending on your preference. It all depends on your cardholder agreement for the specifics. A complete refund and the ability to access your money should be possible within a few business days in general unless your credit card company has very tight regulations concerning negative balances.

Request a Deposit:

If your credit card company allows it, ask for a deposit of the negative balance into your bank account. There are also more options, such as checking, money order, and/or cash.

Buy Something:

If you have only a modest balance, making a purchase may be the simplest solution. Take a $200 negative balance. If you spend that money on groceries and other necessities, your card balance will go restored to zero once a few more purchases are made. This approach has nothing wrong with it—after all, it’s the money you’re dealing with. If you “spent away” a negative amount, you face the risk of overspending, collecting more debt, or skipping a payment, which results in late fees, interest, and harm to your credit score.

Spend the amount on your credit card if you’re used to paying down the whole balance each month, and you’re regularly using it for that purpose. To be on the safe side, ask for a refund if you don’t use that card very often, if you’re not as punctual with your payments, or if you’re not sure whether or not you’ll utilize the money shortly after you get it!

Does a Negative Balance Affect Your Credit Score?

You will not be reported to the three main credit reporting agencies if you have a negative balance since it is not included in your payment history. In the event that you have a negative balance on your account, lenders or businesses will be in the dark.

FICO and VantageScore only utilize the financial data on a credit report to create scores. That said, if you have a negative balance on a card, your credit utilization, or the amount of available credit you’re using compared to your credit limit, is zero percent. You may get greater utilization by paying down the balance on your cards each month. This is how having a negative balance helps you build credit.

The credit card’s limit is unaffected by a negative balance, and this is good news. You’re not entitled to a new credit limit of $5,200 since you owe the issuer $200. Even if you go above your credit limit by some amount, your credit score won’t be affected.

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Just A Reminder: It’s Your Money

Don’t forget that you have a legal right to your negative account balance. In any case, you are entitled to a return of any money that is owing to you. Even if you don’t read your credit card bills or ignore your credit card account for several months, the card issuer is obligated by law to make a good faith effort to refund any negative amount that stays in your account for over six months.

Allow yourself to have a negative amount, and don’t think that requesting a refund would put your credit card company out of business. Get in touch with your bank’s customer care department and inquire about getting your money back. Alternatively, you can use the negative balance as a down payment on future purchases with your credit card provider.

Bottom Line

It could mean that you have some extra room when it comes to how much you can spend on your card.

In most cases, a negative credit card balance isn’t even that bad of a thing to have around. Even in the worst-case scenario, it may be good.

Paying down your credit card balance in full each month is the ideal situation as it gives no additional benefits to have a negative balance.