Credit Card In Credit - What You Need To Know
You may have heard the term credit balance or you may have heard that you can have debit and credit balances on a credit card, but not sure which is which - the terminology banks use for simple things can get pretty confusing.
A credit balance on a credit card means you have repaid more than you have borrowed, and the credit card company owes you money. This can happen if you have had a refund, a bonus applied to your account or paid more than the credit card balance.
This does happen from time to time and while it's nothing much to worry about, it's good to know why your account is in credit, what you need to do about it and key things you have to know about being in credit on your credit card.
What is a credit balance on a credit card?
You probably know about the difference between your debit card and your credit card - the debit card will usually hold money that you can spend while using the credit card borrows money that you later repay.
In finance, the terms debit and credit are quite simple. To debit means to subtract money from an account and to credit means to add money to an account.
When the banks came up with the name, they didn't really take the customer into account. The term credit card just means that every time you spend money on the card, the bank records a credit on their liability account (i.e. they add to that account because the debt they are owed has increased).
A credit balance on a credit card therefore means a balance that is positive, rather than negative. In this case it is the credit card company who owes you money rather than the other way around.
You may note that some credit card providers will mark balances with DR and CR marks against the transactions or when they print your balance - DR simply stands for Debit and CR for credit. If your balance has a CR next to it, then your credit card account is in credit.
How can you get into credit on a credit card
There are a few different ways in which you can get your account in credit.
The easiest and most common way is for you to overpay your account. This can happen in a few different ways. Usually a credit card company will have checks in place to prevent you from paying more than the total balance if you are making a payment through their website.
But there are a number of other ways in which you could accidentally overpay.
First - if you make more than one payment on their website, even if you do them on different days, the sum of these payments could be more than what you owe and your account will go into credit.
You may also fall into the trap of making a manual payment to repay your balance early, only for the credit card company's systems to still take out the direct debit afterwards, putting your account into credit. This is particularly easy to do if you make your payment 1 or 2 days before the direct debit is taken because the request has already been made to your current account by that point.
Another way in which you can go into credit is if you have had a refund applied to your account. If you have returned an item to the shop or had a goodwill payment credited to you after you had paid for the original purchase, your account may go into credit if there is no other balance. This can also happen if your credit card company refunds some fees or other charges for whatever reason.
The last way that some people manage to get their account into credit is when they have a cashback or some kind of monetary reward credit card. Often these cards pay you your cashback reward once a year and when that reward hits your account, you may well not have any balance which will automatically put your account into credit.
What happens when your credit card accounts goes into credit
When your account goes into credit, nothing of note actually happens. The only thing you'll notice is that your balance will have some annotation next to it, such as CR, indicating that your account is actually in credit.
Some credit card statements will show this as a negative balance, just to make things a little more confusing. If you are £10 in credit, your statement balance may well say - £10. If you're used to debit card statements, this is an unusual situation in which a negative balance is actually a good thing.
When we say good, we mean that you don't owe anything on your credit card which can only be a great place to be. However having a credit balance on a credit card is not actually a good idea.
For starters, your Terms and Conditions will typically state that you should not put your account into credit and you are technically breaching your agreement by doing so. Don't worry - the credit card company won't punish you but it's important to know anyway.
You should check your credit card agreement to see what happens when your account goes into credit - this is something that the credit card companies treat very differently.
Some will not do anything about it at all other than inform you that you are in credit. At the other end of the scale, companies may refund the credit balance to your debit card within a few days. The most common thing that happens is that your credit balance will be refunded after the first statement on which it shows.
If your credit card company does not have your debit card details (e.g. you have not set up a direct debit), then the only way for you to get your credit balance back will be to contact them by phone or via their website/app and provide them your bank account details.
The easiest way to sort your credit balance, provided it's only small, is just to spend it. If you are spending money anyway, you might as well use the card that has the credit balance and use the credit up - saves you having to figure out what to do with the balance or waiting for your money to be refunded.
Important things to know about credit balances on a credit card
First thing to note is that it's a bad idea to try and put your credit card into credit intentionally. It is explicitly against the terms and conditions of most credit cards and while usually it will go largely unnoticed, intentional attempts to put your account into credit may trigger fraud alerts and your account could be suspended.
While it may have worked 20 years ago, putting your account into credit doesn't have any advantages. In the past, if you wanted to buy something that cost more than your credit limit, you could get away with putting your credit card into credit and then making the larger payment.
Today, most credit card companies won't allow transactions to go through that are larger than the credit limit, so this trick won't help you.
Also, in doing this, you are likely to lose Section 75 protection which you probably want to have on your large purchase. If that's the reason for you doing it - remember that Section 75 applies even if you only make a partial payment with your credit card for over £100 and it applies to the entire amount.
Another key thing to note is that credit balances on credit cards are not protected by the Financial Services Compensation Scheme. If something happens to the company or your account, you will have no recourse for compensation.
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