Why Is There a Negative Balance on My Credit Card?

A negative balance on your credit card doesn’t necessarily mean something is wrong. Find out why you might be seeing a balance below zero.

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We all know that building a strong credit score is important. But the complexities of the credit reporting system can be confusing at best when you’re trying to bolster your score.

According to Card Rates, an average of 39 percent of cardholders follow a strategy for managing credit debt by consistently paying off their balance in full each month.

But, what happens when your monthly statement arrives displaying a negative balance? This happens more often than you’d think.

A negative balance on a credit card may look odd, but there is no need to panic. It’s generally not a problem and won’t reflect negatively on your credit score.

In this article, we’ll explore what a negative balance means for your account, what causes it, and how to fix it.

What Causes a Negative Balance on a Credit Card?


Causes of Negative Credit Card Balance

A negative balance on your credit card statement, generally, does not mean that you’ve done anything wrong. Usually, it means that your card issuer owes you money.

Every purchase you make with your credit card is added to your principal balance. This is the balance that appears on your monthly statements.

If you’re paying off the balance on your account every month, the principal balance indicates how much you owe.

If you pay off your card in full based on this number, you’ll bring the balance down to $0.

The most common reason for a negative balance on a credit card is that you have overpaid on your principle.

Your total balance varies from day to day, as new charges are added or refunded based on your purchasing behavior.

For example, If your statement balance is $1,500, and you pay the balance in full at the end of the month, your total amount owed will be taken down to $0.

However, if you are then issued a refund of $200 for a returned item, this refund will appear on your statement as a credit and will create a credit balance.

Your statement will display this credit as ($200) or -$200.

Reasons for a Negative Balance


A negative balance is essentially the result of overpaying on your credit card bill. There are a number of reasons why you might have inadvertently overpaid. These include:

1. Credits

If credits are applied to your account, it means that you’ve made an overpayment. You’ve paid more than you owe.

2. Cashback Rewards

Some card providers apply cashback rewards automatically in the form of a statement credit. Some providers require that you redeem cashback rewards for statement credit.

In either scenario, if your cashback rewards exceed your balance in a statement period, you’ll have a negative final balance.

3. Returned or Refunded Items

If you’ve returned a purchase, the refund might not be processed by your credit card company until after the close of the billing period.

In this case, the refund will appear on your next bill.

4. Other Refunds

You may have received another type of refund, like refunded fees or the return of fraudulent charges.

These items will appear as credits on your statement and could easily result in a negative total balance.

How Do I Bring My Balance Back to $0?


How To Fix Negative Credit Card Balance

If you have a negative balance on your credit card, there are a couple of options to bring your balance back to $0.

The easiest option is to do nothing and simply use your card as normal.

As new charges are applied to your card, the added charges will move your balance back towards $0.

You can check your balance online at the end of the next billing period to determine how much you will need to pay.

You might even want to take this as an opportunity to save a little money and buy gift cards with your credit card at reduced rates.

Another option you’ve got is to request the credited amount to be disbursed to you in some way other than a statement credit.

Your credit card issuer may offer a check, direct deposit, or money order as alternative methods for clearing up a negative balance.

Know Your Rights When It Comes to Refunds


Keep in mind, however, that banks and creditors are required to handle negative balances in very specific ways.

If a credit balance is more than one dollar, your card issuer must take one of the following measures:

  1. Credit your account for the amount of the credit balance.
  2. Refund any part of the remainder of the credit balance. This must be completed within seven business days following the receipt of your written request for the refund.
  3. Make a good faith effort to refund your credit balance amount by check, money order, cash, or by crediting your bank account with an amount equal to the credit balance.

Your bank is not usually able to allow a negative balance to sit on your account for more than six months.

Some card issuers give you the option to accept your refund through popular online platforms like PayPal.

But, is withdrawing money from PayPal the smart thing to do? Be sure to investigate your options before you agree to an indirect refund.

Does a Negative Balance Affect Your Credit Limit?


Does Negative Balance Affect Credit Limit

A negative balance on your credit card does not mean that you now have a higher credit limit. Your credit remains the same, but you now have the potential to spend more than the card limit.

You will be able to spend the amount of your credit balance, without exceeding your credit limit.

Let’s look at an example to illustrate this.

If your card has a balance of -$100, and your credit limit is $5,000, you will technically be able to spend $5,100 on your card before you exceed your credit limit.

This is purely hypothetical of course. Most finance experts recommend that you keep your credit card use below 30% of your limit.

Typically, your credit limit is set by your card issuer when you apply for the card. If you require a credit limit increase, you will need to ask your card issuer and renegotiate.

A Word of Caution


Be wary though, a request like this may or may not create a hard credit inquiry on your credit report, and you run the risk of being refused an increase.

Do not treat a negative balance on your credit card as a de facto limit increase. Instead, view it purely as an overpayment for that particular billing period only.

Stay on top of all your accounts by leveraging a personal finance app that will notify you of payments and negative balances as they occur.

Check out our comparison of EveryDollar vs. Mint—two highly effective apps designed specifically to help you manage debt.

Fortunately, there are platforms and services out there designed to make managing your credit card usage and credits score more streamlined.

Tally is the first automated debt manager that helps to make managing all your cards easier. The platform has options to support paying down your balances more quickly.

Tally has an app for both iOS and Android devices and is essentially a consolidation app that makes it easier to stay on top of all your credit card accounts.

After scanning your cards, Tally can provide a line of credit to help manage your payments, creating a faster way to organize your cards and pay down your balances.

Once you add your cards, Tally will analyze your individual accounts and credit history to ensure that your unique situation is supported by the app’s feature-set.

If your account is approved, Tally secures your credit line and helps you minimize fees and interest by automatically making the right payments to the right cards on time.

You get to keep using your cards and enjoy all the accompanying perks and rewards.

Should You Be Worried About a Negative Balance on Your Credit Card?


Does Negative Balance impact Credit Score

You might be staring at your balance wondering if this negative balance on your credit card is a bad thing or if it will impact your credit score.

Many people believe that overpaying on your credit card bill could increase your credit score. There is some theory parading around the web that suggests this as a hack for boosting your score.

But, according to the experts as CreditKarma, this is not the case. Overpaying your credit card balance will not improve your credit score.

This theory is based on a misconception of the credit utilization ratio—the amount of credit you’ve used compared to how much you have available.

Lower ratios are generally better for credit scores.

However, the algorithm for scoring reads negative balances as zero amounts for your credit report.

Additionally, you won’t be able to use a negative utilization ratio on one of your cards to offset higher usage on another.

What Does A Negative Balance on Your Credit Card Mean?


A negative balance on credit card statements is not necessarily a result of anything you have done incorrectly.

A negative balance on your credit card is simply an indication that your card issuer owes you money.

This is a common issue, and most card companies have policies in place to deal with this type of situation.

In most cases, you can simply continue using your card as normal, and the credit balance will resolve itself by the time your next statement is produced.

However, if you have concerns about your balance, it is worth checking with your card issuer and investigating your rights as a credit holder.

By Lorraine

Lorraine has had a successful career in the financial industry with a variety of roles including senior executive and national coordinator.

Today, Lorraine enjoys using this expertise as a professional writer to help people get their finances under control through her articles and blog posts. Whether you’re looking to save money, organize a budget or get the best loan deal, you can benefit from Lorraine’s tips and tricks.

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