The balance you have on your credit card is a representation of the amount that you owe once you use the card to make purchases. If you are completely paying off the statement balance within the due date every month, your credit card balance will be zero. On the other hand, when you carry a balance, you will have to pay an interest over that amount. So, you probably are wondering what a negative balance on a credit card is.
Well, I am here to answer your question. In this article, I shall discuss everything about the negative balance on credit cards and what you should do if you have one.
What Is A Negative Balance On Credit Card?
A negative credit card balance is when the balance on your credit card goes lower than zero. It is then called a negative credit account balance. This means the credit company owes you an amount rather than the other way round.
Generally, this takes place when you overpay the outstanding balance or if you have had any credit returned to your account. A widespread example is if you purchase with your credit card but return the item later. The store will then issue your credit back to your account. Let us assume you bought a dress for $25; when you return the dress, the $25 credit will go back to your account that already has a zero balance. Now you have a -$25 balance in your account.
What Is The Reason Behind A Negative Credit Balance?
A negative balance on your credit card is nothing unusual. A lot of people face this issue. However, each of them has different reasons behind it. While there are multiple reasons why you may have a negative balance on your credit card, here are some of the most common ones:
Returning A Purchase And Getting A Refund:
Let’s Imagine you are returning a purchase or disputing a charge that you already have paid for, you might receive a refund from your credit merchant or the card issuer that negates your credit balance.
If You Pay Extra:
If you ever manually enter the amount you are paying, you might end up paying more than the due amount. Or if you turn on the autopay but make annual payments when it withdraws, you may end up paying twice.
You Have Earned A Statement Credit:
Some credit cards offer you a welcome bonus or an annual credit that is posted to your credit account once you make eligible charges. You may as well be allowed to redeem the rewards on the credit card for the statement credit. Might these credits be posted once you pay the bill.
What To Consider If You Have A Negative Credit Balance?
There is nothing wrong if you have a negative balance on your credit card. However, there are a few considerations that you need to keep in mind:
A Negative Card Balance Will Have No Impact On Your Credit Score
Most credit models take a negative balance on credit cards, the same as a $0 balance. This means that there is absolutely no chance that a negative credit card balance is going to affect your credit score.
A Negative Credit Card Balance Will Not Improve Your Credit Score
Individuals who use credit cards frequently tend to zero their negative card balance within a short time. This means there will not be any long-term effect on their credit utilization rate. That will have a heavy impact on their credit score.
A Negative Balance Denotes That A Cardholder Is In A Good Position
When you pay your balance each month, it will make sure that you are keeping your credit utilization rate low, making payments on time, and improving or maintaining a good credit score. Having an account with a negative balance means you are on top of all your bills and keeping up with each of your financial decisions.
A Negative Balance May Make The Closing Credit Account A Lot More Cumbersome
While it is not the worst of the consequences to deal with, closing the credit account with a negative balance would mean there are a couple of more steps to get the money back and close the account once and for all.
Ways To Get The Money Back From A Negative Balance
It is always best for the cardholder to use any negative balance on their credit statement. It might not be similar to cash in the hand, but it does carry some value. Once you use up the negative balance, you may continue to purchase anything you want or close the account if you want.
Keep The Balance Aside And Decide Later
A negative balance will just sit in your account for 60 to 90 days before your bank decides to refund the money through a check or cash deposit to the linked account. As the issuer of the card owes the cardholder, any monthly payment will not be needed for the danger of accruing interest.
Use The Credit Card For Any Additional Purchase
The simplest way to bring the negative balance to $0 is by continuing to make purchases with your credit card. Even if the credit balance turns positive, you may as well make yet another payment to pay off the positive account balance.
Credit Balance Refund
If you have a big negative balance on your credit card, you may request a refund through direct deposit or check from the credit company. However, it does make more sense if you have a large balance. Having a large negative balance will not require you to request a refund.
Frequently Asked Questions !!! [FAQs]:
Q1. What Happens If I Overpay Credit Card?
Ans: While you will not face any penalty if you overpay your credit card, there are no benefits either. When you are paying more than your due balance, the issuer of the card will automatically issue the extra amount as a statement credit. There, it will reflect a negative credit balance.
Q2. How Do I Remove a Negative Bank Balance?
Ans: The most common and easy way to remove a negative bank balance is by eliminating it by depositing the amount that the bank needs to get the account back in a good position.
Q3. What Happens If Credit Card Refund Is More Than Balance?
Ans: If your credit card refund is more than the balance, the account will automatically have a debit balance. It will not require any payment.
The Bottom Line
If you have a negative balance on your credit card, the easiest way to bring the balance back to $0 is by making newer purchases.
For example, if your balance is -$50, you may just apply it to future purchases. Once you make purchases of $50, the balance will automatically return to $0. Or it may reduce your next bill by 50 dollars.
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