Why You Have a Negative Balance on Your Credit Card and What to Do About It

·6 min read

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 balance on your credit card 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 how it can happen and what you need to do -- if anything -- to get your money back.

Up ahead:

-- What does a negative credit card balance mean?

-- Reasons why you may have a negative balance on your credit card.

-- What to do if you overpay your credit card bill.

-- Here's how to get a credit balance refund.

-- How a negative balance affects your credit score.

What Does a Negative Credit Card Balance Mean?

Let's say you know your credit card payment is due soon, so you hop online to check out the balance. 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.

A negative balance on your credit card can happen in a number of ways. This situation may or may not require action on your part. Let's take a look at the possible scenarios that led to your negative balance and whether you need to do anything.

Reasons You May Have a Negative Balance on Your Credit Card

If you pay your bill in full every month, well, kudos to you. 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 after overpaying your credit card bill:

-- You made an extra payment.

-- You got a purchase refund.

-- You got a statement credit.

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.

For instance, maybe your card offers a $200 airline fee credit. You pay off your balance but then get reimbursed later for eligible expenses with a statement credit. Sometimes, it's a timing issue between the statement credit and your payment for the full balance.

[Read: Best Airline Credit Cards]

What to Do If You Overpay Your Credit Card Bill

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. In this case, the issuer gives you a statement credit for the amount overpaid. The credit balance is then applied to your new purchases. You use the credit card the way you always have, and eventually you're no longer in negative balance territory. This is a good choice if you aren't hurting in terms of cash flow and it's a credit card you use regularly.

-- Ask for a refund. This is an option for someone who needs the overpaid amount back to pay other bills. It also might be the best choice if the credit balance is on a credit card you don't use often. If you prefer -- or need -- a refund, the next section gives you everything you need to know to make it happen.

Here's How to Get a Credit Balance Refund

If you want a refund, you can write to your credit card issuer and request it. The Truth in Lending Act specifies that the issuer has to refund the credit balance, minus any "intervening purchases or other debits" as determined by the creditor, within seven business days after it receives your request for a refund.

Just in case you miss the overpayment and discover it, say, three months later, you're still protected. The issuer must make a "good faith effort" to refund any credit balance remaining in your account for more than six months.

[Read: Best Travel Rewards Credit Cards.]

But if your address and phone number can't be determined, your issuer isn't required to take any additional action. So keep tabs on your money , and get back what's rightfully yours.

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. Even when you've got a negative balance, your credit limit remains the same. For example, if your credit limit was $4,000 and you have a balance of -$200, your credit limit is still $4,000 (not $4,200).

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.