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You’re probably aware of the negative consequences of not paying your credit card on time—especially if you’ve ever missed a payment and have experienced the havoc it can wreak on your credit score.
But you’ve probably never given much thought to what happens if you pay too much on your credit card. While it may be a less frequent problem than late or missed payments, overpayments certainly happen.
Whether you’ve made too large a payment or had a refund come through for a recent return, an overpayment results in a negative balance on your credit card. Suddenly, your credit card issuer owes you money instead of the other way around.
An overpaid credit card is typically a temporary problem—you simply don’t have that money in your bank account for a short while. But it can be helpful to understand why overpayments happen, what to do about them and how to avoid them in the future.
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How Credit Card Overpayments Happen
If you have an overpayment on your credit card, more likely than not you made an error making last payment. It could be that you entered the wrong number when typing in the amount you wanted to pay or made a payment to the wrong card.
Another way these payment errors can happen is if you make a manual payment too close to an automatic payment. Let’s say you make a manual payment on the sixth of the month, but an automatic payment is scheduled for the same day. Neither payment clears in time to stop the other, so you end up with a negative balance equal to the extra payment.
While many negative balances are the result of paying too much, others could be caused by credits being added to your account. Maybe you returned an item and the refund has come through after you paid off your card. Or you redeemed credit card points or a merchant offer for a statement credit, but there was no balance on the card to which it could be applied.
What To Do If You Overpay Your Credit Card
If you end up with an overpayment on your credit card, you’ve got a few options. The best choice comes down to how quickly you need the money back.
Let the Negative Balance Roll Over
The simplest way to handle a negative credit card balance is to do nothing at all. As you spend money on the card, the overpayment will eventually correct itself.
Let’s say you’ve overpaid your credit card bill by $250. You don’t necessarily need that money immediately, so you simply let your account have a negative balance.
Over the next week, you spend $250—equal to your previously negative balance—meaning you now have a credit card balance of $0.
If the amount you spend over the next statement period is less than your negative balance, then the negative balance will continue to roll over until your balance passes $0 again. The good news is you won’t be on the hook for a credit card bill until that happens.
Request a Refund
If you need the money that was overpaid on your credit card faster or you just don’t want to let your credit card company hang onto it, you can ask for a refund.
The Code of Federal Regulations states that if a credit card has a negative balance of at least $1, whether due to overpayment, rebates or any other reason, the borrower has a few rights. First, the card issuer must credit the excess to the cardholder’s account. Additionally, the cardholder must refund the negative balance within seven days if the cardholder requests it.
Does a Negative Balance Hurt Your Credit Score?
Having a negative balance on your credit card isn’t likely to hurt your credit score. However, it won’t help your credit score either.
The biggest effect that your credit card balance has on your credit score is in terms of your credit utilization—the percentage of your available revolving credit currently in use. Generally speaking, the lower your credit utilization, the better your credit score.
However, the benefit stops when your balance reaches zero. A negative balance doesn’t further lower your credit utilization, nor does it improve your credit score.
The Downside of Overpayments
In most cases, an overpayment on your credit card isn’t likely to cause any problems. However, if it results in a significant negative balance, you could trigger a fraud alert.
A large negative balance can sometimes be a sign that someone is laundering money. Additionally, credit card companies may suspect return fraud, where people get refunds for stolen items.
You should be able to clear up the issue by speaking with your credit card company, but you could have your account frozen in the meantime.
How To Avoid a Credit Card Overpayment
While nothing negative is likely to come from overpaying your credit card, you’d probably prefer to avoid it in the future. After all, you can probably put that money to better use in your bank account than you can as a credit on your credit card account.
The simplest way to avoid an overpayment on your credit card is to set up automatic payments. You can automate your account to pay either the minimum payment, a fixed amount or the full balance on a specific day of the month. If you choose the minimum payment or full balance option, you can rest assured you’ll pay the correct amount.
If you prefer to manually pay your credit card each month, ensure you enter the correct number. Go by the balance shown in your online account versus your latest paper statement since it will be the most up to date.
Also make sure you don’t have any automatic payments set to go through around the same time you manually make a payment. There’s a chance that both payments could go through, resulting in a negative balance.
Bottom Line
The best way to avoid overpaying on your credit card—as is the case for most financial pitfalls—is to pay close attention to what’s going on with your money. Setting up automatic payments, checking your balance regularly and knowing where your money is going (and coming from) can help avoid unnecessarily tying your money up on your credit card.
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