Your Must-Read Guide to Understanding a Negative Balance on Your Credit Card

If you open your credit card statement and see a minus sign to the left of your statement balance, you have a negative balance on your credit card. But don't let the minus sign fool you — the word “negative,” in this case, isn’t a bad thing! If you're wondering what it means and if there's something you're supposed to do about it, we've got you covered. In this article, we've broken down everything you need to know about a negative balance on credit cards.

What Is a Negative Balance on a Credit Card?

Having a negative balance on your credit card isn't anything to worry about, and it's actually a favorable situation for you. That minus sign on your statement balance means the credit card company owes you money — instead of you owing them for once.

If you have a credit limit of $5,000 on your card and your billing statement shows you have a negative balance of -$1,000, that means you now have a limit of $6,000. This means you can spend $1,000 without needing to make a payment on your credit card. No payment will be required until you have a positive balance (greater than $0) on your following credit card bill. 

How Did the Negative Credit Card Balance Happen?

Negative balances on your credit card can happen for a variety of reasons.

You Returned Items After Paying Your Credit Card Bill

When you return items you bought with your card, they appear as refunds on your credit card statement. Let's say you bought $200 in books for a college course, then paid your credit card balance in full and didn’t make any other purchases on it. A week later, your friend says they’ll lend you the books for the course, so you return them. When you get your refund to your paid-off card, you'll have a negative balance of -$200.

You Received a Refund From a Merchant or Service Provider

If a merchant or service provider issues a refund to your card, you might end up with a negative balance.

For example, let's say you used your credit card to put a deposit down on a venue for your wedding. A few weeks later, the owner lets you know they’ll no longer be able to host your event due to unforeseen circumstances. They issue you a credit back to your card for the amount you deposited. If your current credit card balance is $300 and they refund $1,500, you’ll have a negative balance of -$1,200. 

You Overpaid Your Credit Card Bill

Overpaying your account balance is a common cause of a negative balance. Maybe you paid your bill without looking at your statement or paid your card twice in error — whoops! 

To avoid accidentally overpaying in the future, you can set your payment on autopay. You're typically given the option of choosing:

• The minimum payment due

• The full statement balance

• A fixed amount each billing cycle 

You Redeemed Rewards or Received a Bonus From the Issuer

A lot of credit card companies offer bonuses for opening a card, making a balance transfer, or spending a certain amount within a billing cycle. Sometimes these bonuses are issued as statement credits instead of points. You might have a card that earns cash-back rewards, which are credited to your card each billing cycle. Depending on your balance at the time you receive the bonus or cash-back, you may end up with a negative balance. 

You Received a Fee Refund or a Reimbursement of Fraudulent Charges

Some credit card companies might issue courtesy refunds of late fees or annual fees if you ask them. These refunds show in the form of statement credits, which then reduce any balance owed. 

If you had fraudulent purchases made on your card and filed a claim for reimbursement, the amount is returned to your card when it's resolved. If you've made payments since the fraud occurred, the reimbursement can result in a negative balance.

How Do You Remove the Negative Balance on a Credit Card Account?

If you want to see a zero balance on your credit card statement, here’s what you can do:

Use the Credit Card

The easiest option is to use your card for purchases or to pay bills. With each new purchase or charge, first you’ll use up the balance amount showing negative. Then it’ll start creating a positive balance that you’ll need to make payments on each billing cycle.

Ask for a Balance Refund From Your Credit Card Company

If you want that negative balance amount back, rather than having to use your credit card to resolve it, you can ask your credit card company for a refund. According to Regulation Z of the Truth in Lending Act, creditors have to refund negative balances of -$1 or more within seven days of receiving a written request from the consumer. 

For negative balances held for six months or more, the card issuer has to make a good-faith effort to locate you regarding the credit balance and issue a refund. They may issue it as a check, money order, or ACH to your bank account.

What Happens if You Have a Negative Balance on Your Credit Card Bill?

You aren't penalized by the credit bureaus; however, if you frequently overpay each month (especially really large overpayments), there’s a chance you could draw unwanted attention as a possible sign of money laundering. Although you have more spending power, it's only a temporary limit increase until you bring your card to a zero or positive balance. 

There really isn't a benefit to keeping a negative balance on a credit card. You don't earn any interest on the negative balance amount, so essentially, you're just letting a credit card company hold your money. There are better ways to make use of your money, such as saving or investing. 

Negative Credit Card Balance FAQs

Let’s recap what we’ve covered by going over some frequently asked questions about negative credit card balances.

How Does a Negative Balance Impact My Credit Score?

A negative balance doesn't change your credit score positively or negatively. It's reported as a $0 balance to the credit bureaus. On your credit report, it’ll be reflected as paid in full, not overpaid. Paying off your balance has a positive impact on yourcredit utilization rate, which is a significant factor in your credit score calculation. 

How Do I Close a Credit Card if It Has a Negative Balance?

If you plan on closing your credit card while you have a negative balance, the card issuer will first need to credit you that amount back. They may issue you a check or process it with a bank transfer. 

Does a Negative Balance Increase My Credit Card Limit?

The dollar amount shown to the right of the minus sign on your credit card statement balance increases your credit limit by that much. It's only a temporary increase in your credit limit until you clear out the negative balance; it doesn't mean your credit card issuer has raised your credit limit permanently. Not all credit card companies allow you to overpay or hold a negative balance, so if you're overpaying intentionally to give yourself a spending boost, it may not work. 

How Do I Get My Money Back if I Have a Negative Balance?

If you prefer to get your cash back instead of leaving it as an inflated credit limit, it's as easy as asking your credit card issuer. You can call them, email them, or send a written request. Consumers have full rights to get their money back for any balances more than $1 negative. The lender or card issuer must comply and can issue you a credit with a check, money order, or ACH (similar to a direct deposit or bank transfer) within seven business days of receiving your request.

What Happens if I Overpay My Credit Card Bill?

It depends. If your statement balance is $2,500 with a minimum payment due of $50, and you decide to pay $1,000, you’ll just owe less. But, if you pay $3,000, you’ll end up with a negative balance of -$500.

Can I Use My Credit Card With a Negative Balance?

Yes, you can use your card just as you usually would if you had a zero or positive balance. Each time you use your card, it brings your balance closer to zero. New purchases will first use up the negative balance, and then your credit limit will get used.

Negative Balances on Credit Cards Aren't a Negative Thing

A negative balance on credit cards isn't a negative scenario for you, as the word might imply. It can seem a bit backward at first, but basically a negative balance means the credit card company owes you, and a positive balance means you need to make payments. Although it's not required, if it bugs you to see that negative balance each billing cycle, you can resolve it by asking your card company for a refund or using the card for purchases. 

Here at Arro, we believe everyone deserves access to credit at fair rates and transparent, accurate information to set them up for success. That's why we provide financial education and offer a credit card that doesn't use your credit score as a deciding factor. Learn more on our blog and sign up for our Arro Card waitlist to start your path to financial wellness.