Credit cards are a great financial tool when used properly. They let you make large transactions without having to carry around cash. They also offer great rewards programs that let you save money on your day-to-day spending.
Despite these benefits, credit cards are not free money. Every month you’ll get a bill for the balance of your credit card. Ideally, you’ll want to pay the bill in full, but most people have paid less than the full amount at some point in their life.
However, it is possible to do the opposite, paying more than the full amount due -- resulting in a negative credit card account balance. Learn what happens when you overpay your credit card bill.
How You End Up Overpaying Your Credit Card
The first question you’re likely to ask is “how is it possible to overpay my credit card bill?” There are a few ways that this can happen, some through no fault of your own.
One of the most common ways that you can wind up overpaying your credit card bill is by entering payment amounts manually.
Every credit card issuer that has an online payment system gives you options on how much you want to pay when you make a payment. Usually, they offer the option to pay the full amount, the minimum balance, or a custom amount. Usually, you use the custom amount option when you want to pay more than the minimum but less than the full balance.
If you enter the amount you’d like to pay incorrectly, whether it be by swapping or adding an extra digit, you can pay more than you owe. Many card companies limit you to paying no more than the full balance, but some do allow you to overpay. If this happens, you’ll wind up sending more money to the credit card company than you owe them.
Another way to do this is if you make your payments by physical check. If you write the wrong amount on the check, the card company will get paid more than you owe them.
Additional payments on top of automatic payments
Another common way that credit card bills get overpaid is when people make a manual payment when they have automatic payments set up. Most card issuers offer the option to set up autopay for your monthly bill. This is a great feature because it removes the stress of remembering your bills’ due dates. You’ll never pay a late payment fee when autopay is turned on since the card company will withdraw the money from your bank account for you.
If you’re like me, you sometimes like to pay off your credit card balance during the month without waiting for your statement to come in. If you have automatic payments turned on, this can result in excess payments. If your autopay is scheduled to go through on the 2nd of the month, and you make a manual payment on the 1st, the system might not recognize that your card’s balance has changed. Your automatic payment will then go through for the card’s old balance.
Refunds and credits
The third way you can overpay a credit card is by receiving a refund. Picture this scenario.
On the 15th of the month, you buy a new vacuum from the store. You use it and it works great, so when your credit card bill comes on the 30th, you pay it right away. A few days later, the vacuum breaks. You bring it back to the store and ask for a refund. The store gives you the refund by crediting your card.
In this scenario, you wind up with an overpaid credit card, even though you paid exactly what you owed at the time.
What Happens if You Overpay Your Credit Card
If you overpay your credit card your account’s balance will go negative. That means that the card company owes you money, rather than you owing the card company money.
Avoid it if possible
Overpaying your credit card isn’t the worst thing to do, but it’s still not a good thing to do.
For one, you don’t want the credit card company holding your money. Every dollar that is sitting in the credit card company’s account instead of yours is earning the company interest instead of you. Plus, the money is tied up and relatively inaccessible to you. If you need cash to pay bills and you have a lot of money tied up in overpaid credit card balances, you might wind up in financial trouble even if you would have been able to pay the bills.
How to Handle an Overpaid Credit Card
If you do accidentally overpay your credit card bill, there are a few options to fix the situation.
When you overpay you credit card, you’re essentially pre-paying for your future expenses. The easiest thing to do is to just continue using the credit card. All of your future purchases will be applied towards the negative balance you’ve built up. Once you’ve gotten your balance back to the point where you owe money again, you can continue making payments as usual.
Ask for a check
Even though you sent the money to the card issuer, the money is still technically yours. While overpaying a card isn’t common, it also isn’t as uncommon as you would think. Most credit card companies will be happy to refund you the overpaid amount by sending you a check. All you have to do is contact the company by phone or e-mail and request a check for the balance.
While this is the slowest and least-recommended option, you can do nothing about your negative credit card balance. Legally, credit card companies must make a good-faith effort to issue a refund of the negative balance after 6 months of the card being unused.
The reason that this is not recommended, other than the fact that it takes six months to get the refund, is that there’s no guarantee you’ll get the money back. The card company will try to refund you, but if you’ve moved or something prevents them from contacting you, you won’t get the refund.
Does an Overpaid Balance Affect Your Credit Score?
Given that your credit card balances affect your credit score, an overpaid balance can only help your credit, right? In fact, a negative credit card balance has the same effect on your score as a balance of $0.
The lower your credit utilization the better, so having a negative balance is better than having a huge balance, but there is no special benefit to overpaying.
Potential Fraud Alerts
One big reason to avoid overpaying your credit card balance is the potential for your account to be flagged for fraud.
Overpaying a credit card is an unusual thing to do. Some companies allow you to prepay your card if you want to make a purchase that exceeds your credit limit, so it can sometimes be a sign of a large purchase coming up.
If you suddenly overpay your card by a large amount, especially if you use a new that could worry a card issuer. They could suspect that a fraudster has gotten access to your card account and plans to use it without your permission. That could result in your account being shut down temporarily, or even permanently.
How to Handle a Fraud Alert
If your card is flagged for potential fraud and shut down, don’t panic.
The first thing to do is to reach out to the card issuer’s customer support line. Explain the situation to them and tell them that you simply made a mistake when paying your credit card bill. Be sure to answer any questions that they have accurately and in full. If the lender is really worried about fraud, they’ll want to confirm that they’re really speaking to you and not someone who has stolen your identity.
Once you’ve gone over the situation with the company’s support staff, they’ll be able to reactive your account.
In the worst case, if your account is shut down completely, it’s still worth calling. The card issuer might be able to reopen the account. If they cannot, start shopping around for new credit cards. Overpaying your card won’t have impacted your credit, and you might have the chance to earn a valuable credit card sign-up bonus.
It is possible to overpay your credit card, but it generally isn’t something you should do on purpose. It offers no real benefits and ties up your cash in the credit card issuer’s account. Make sure to avoid overpaying by carefully entering the correct numbers when paying, or relying on autopay to make payments for you.