If you’re working hard to pay off your credit card bill every month, the possibility that you’d overpay your bill and have a negative credit card balance might be laughable to you.
But you’d be surprised by how easy it is to overpay — even if you’re barely squeaking by with your monthly payments. When this happens, you end up with a negative balance. This surprising state of affairs is also called a “credit balance.” Read on to find out what a negative balance means for your next payment and to learn what other situations can create a credit balance.
What Does a Negative Credit Card Balance Mean?
If you see a negative balance on your credit card statement, it means that you don’t owe money as of that date. But there are likely pending transactions that haven’t been posted to your account yet, so don’t think you can relax and check your statement in a few months.
Let’s take a look at the possible scenarios that led to your negative balance and whether you need to do about it, if anything.
Reasons You May Have a Negative Credit Card Balance
If you pay your bill in full every month, that’s awesome. Keeping a balance that dances around the zero mark is great for your credit score. But living on the edge, even in a good way, makes it easier to end up with a negative balance on your credit card.
[Read: Best Rewards Credit Cards.]
Here are a few ways that you could end up with a negative balance on your credit card bill:
— You made an extra payment. If you have automatic payments set up, but you decide to make an extra payment manually using your credit card issuer’s online payment system (or sending an actual check in the mail). It’s easy to enter the wrong amount — or make math errors — and overpay.
— You got a purchase refund. Let’s say you bought a microwave oven, but it didn’t work properly, so you decided to return it. You ask for a refund, and you get a statement credit. Since you’d already paid for the oven on your bill, you end up with a negative balance.
— You got a statement credit. If you have a credit card that offers a reward or a sign-up bonus as a statement credit, this can create a negative balance if your account was close to a zero balance.
— You asked for a fraudulent purchase to be removed. A negative credit card balance could happen if you paid your bill and then realized there was a fraudulent purchase. In this case, you’d ask to have the amount removed from your balance.
[Read: Best Airline Credit Cards.]
What to Do About a Negative Credit Card Balance
If you’re worried you’ve lost your money, you can relax. The money is legally yours. Here are your options, and they’re pretty simple:
— Don’t do anything right now. Just wait on the credit card issuer to make it right. It’s your money, after all. But do make a note to follow up with your issuer if it stays unresolved or you decide you need the money quickly.
— Use it for future expenses. You use the current credit balance to pay for new purchases. You use the credit card the way you always have, and eventually you’re no longer in negative balance territory.
— Ask for a refund. If you need the money to pay other bills, ask your credit card issuer for a refund. The Truth in Lending Act specifies that the issuer has to refund any credit balance in excess of $1, minus any “intervening purchases or other debits” as determined by the creditor, within seven business days after it receives your request for a refund.
[Read: Best Travel Rewards Credit Cards.]
How a Negative Balance Affects Your Credit Score
I’ve seen suggestions that overpaying your bill is a way to increase your credit score. I hate to burst anyone’s bubble, but a negative balance on a credit card account does not boost your credit score.
The misconception revolves around the utilization ratio, which is the amount of credit you’ve used compared with the amount of credit you have available. The lower the ratio, the better for your credit score.
Many assume the negative balance results in an increase in your credit limit, which would lower your utilization ratio. The credit score’s algorithm picks up a negative balance as a zero amount for the account. So a negative balance on your credit card doesn’t benefit your credit limit or your credit score.
More from U.S. News
How to Use Your Bank’s Automatic Transfer Tools to Make Budgeting Easy
10 Things You Must Know About Your Credit Score
What Does a Negative Credit Card Balance Mean? originally appeared on usnews.com
Update 03/01/23:
