You look at your credit card statement, and it says your balance is negative. What does this mean?
A negative balance on your credit card means that your card issuer owes you money. You may have a refund, have overpaid, or earned a credit. You can request a refund for the amount owed or just wait and use it on your next billing cycle.
Learn more about the various situations when you could have a negative balance on your credit card, as well as what you can do about it.
What Does a Negative Balance Mean on Credit Card?
Most people expect to get their credit card bills and see a positive balance. That positive balance tells you the amount that you owe your credit card company, but what does it mean when the balance is negative?
It simply means that your credit card issuer owes you money.
There are several ways that this can happen, and you have several options for dealing with it.
The important thing to remember is that a negative balance is not bad. Depending on your perspective, it is either good or neutral.
How You Get a Negative Balance on Your Credit Card
As mentioned, if you have a negative balance on your card, this means that your credit card company owes you money. But given the way that credit cards are set up, this is not the norm. You typically owe your credit card money.
The following are some situations where you may find a negative balance on your card:
You Got a Refund From a Return
One of the most likely explanations of the negative balance is that you made a return. If you bought something, paid your credit card bill, and returned it, the company will have to refund your money. The same situation will play out even if you returned the item before you received and paid your bill. As long as the purchase and refund are on different monthly statements, this scenario is possible.
The bottom line is that if you paid the credit card company for the item and then returned it for a refund, you will have a negative balance.
You Got a Refund From a Chargeback
Returning items is not the only situation where you may get a refund after you pay. Another similar situation is if you did a chargeback or disputed a charge.
For example, maybe there was a fraudulent charge on your credit card bill, but you didn't notice, so you paid it anyway.
Or maybe you prepaid for a product or service that was never delivered. In that case, you would have disputed the charge and gotten a refund after you had initially paid.
There is also a reasonable chance that you overpaid your credit card bill. This is an easy mistake to make if you enter the payment amount manually. A simple typo can lead to an overpayment (or an underpayment—so be careful.)
You may also overpay if you set up automatic payments but made an additional manual payment.
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You Got Fee-canceled
Another potential explanation for your negative balance is if you had fees waived or canceled retroactively. This can include interest charges, late fees, or annual fees.
You would have likely had to speak to your credit card issuer to get these fees waived, so you should be expecting the credit on your statement.
You Earned as C Credit or Reward
Depending on the rewards that your credit card offers, you may find yourself with a negative balance when you earn them. For example, maybe your card gives you a welcome bonus. Or perhaps you earn annual credits after you make enough eligible credits. Or maybe a statement credit was one of your options when redeeming your credit card rewards.
What If You Don't Know Why?
If you don't think any of the above situations apply to you, then you should talk to your credit card's customer service. This will let you ensure that it was not an error on their end. That is important if the balance seems incorrect. After all, you do not want to spend money you think you have, only to learn you don't have it.
In most situations, however, there will be a good reason that you have a negative balance. The representative from your credit card company will gladly look at your statement and tell you what it is.
What to Do About a Negative Balance on Your Credit Card
So, what do you do if you have a negative balance on your credit card?
As mentioned, having a negative balance will not negatively affect your credit score. So, there is no need to do anything about it.
Eventually, you will likely buy something with the card and use the balance in the process.
Just be careful about doing nothing with your negative balance if you do not actively use the card. Some cards will automatically close after a year of inactivity (or another specified length of time). Your credit card may or may not issue a refund for a negative balance if it closes your account. This depends on your company and the fine print.
It is worth noting, however, that if the credit balance stays on your account for over six months, your credit issuer must legally refund it to you. This is according to Regulation Z.
Make a Purchase
As mentioned, the simplest thing to do with a negative balance is to just keep using your credit card as normal. The negative balance or credit will be automatically applied to your next monthly statement.
So, if you have a negative balance of $100 and put $200 on your credit card, you would only have to pay $100 out of pocket. Use this method to reduce your next balance due or get it to exactly zero.
Request a Refund
The money in your negative balance is legally yours, and you are entitled to it. If you don't want to wait until the next time you use your credit card to get it, you can ask for a refund. The Truth in Lending Act requires card issuers to refund you any credit balance over $1. All you have to do is send the card issuer a written request to do so.
They then have seven business days to send you the refund. Just remember that you need your current phone number or address on file to receive the refund. The card issuer is not required to refund your negative balance if this information isn't available.
Keep in mind that you may receive the refund as a money order, cash, check, or direct deposit.
When Refunds Make Sense
Assuming that you have a sizable negative balance and are not likely to use it soon, getting a refund makes the most sense. This will let you put it in an interest-bearing account.
If, on the other hand, the credit balance is small and you use the card frequently, it may make sense to just wait to apply it to your next billing cycle.
Does a Negative Balance on Your Credit Card Affect Your Credit Score?
After you realize what a negative balance on your credit card means, it is common to wonder whether it affects your credit score. The short answer is no.
The credit bureaus treat a negative balance exactly the same as they would a balance of zero.
It Does Not Affect Your Credit Utilization Ratio
A related question is whether having a negative balance on your credit card will affect your credit utilization ratio. As a refresher, this is the ratio of the credit balance you are using to your available credit. It is a major component that influences your credit score.
Intuitively, it may seem that having a negative balance would improve your credit utilization ratio. After all, you have more to spend to get to your card's limit. But that is not the case. Remember that the credit bureau treats your negative balance like a balance of zero. So, when calculating your credit utilization ratio, the bureaus will use a balance of zero for the given card.
But You Do Have More to Spend Until Your Limit
While the negative balance does NOT affect your credit utilization ratio or any aspect of your credit score, it does influence how much you can spend. Your credit limit for the card will remain the same, but you have a bit extra that you can spend before reaching that.
For example, assume you have a balance of -$100 and a credit limit of $2,000. You would not reach the limit of $2,000 until you have spent $2,100 because you will use the $100 first. By contrast, if your balance was truly $0, you would only be able to spend $2,000 before reaching your limit.
If you have a negative balance on your credit card, this means that your card issuer owes you money. This can happen for one of several reasons, including if you overpay or get a refund from a purchase or fees. Having a negative balance doesn't affect your credit score in any way. You can either use the balance toward your next purchase or request a refund. Your choice will likely depend on the size of the balance and how often you use the card in question.
Additional reading: How Fast Will A Car Loan Raise My Credit Score?
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.