The whole concept of a credit card is that you’re borrowing money off your lender. Wondering what happens if the roles are reversed?
There are a couple of ways you can find yourself in positive credit. Firstly, you might make an overpayment to clear the balance. Secondly, you might make a purchase, clear your card in full at the end of the month, and then get a refund on the product or service.
Either way, it’s not something that’s necessarily recommended and we’ll explain why.
Can I put extra money on my credit card?
Yes, you can, and usually, this will show up as a “CR” next to the balance on your credit card statement.
If you’re thinking about doing this though, it’s really worth asking yourself why first. There are no real benefits to being in credit on your credit card and you won’t earn interest on the money you put in there, so, regardless of how little it might be, you’re essentially losing money on that extra amount.
There’s also a common misconception that being in credit improves your credit history; it doesn’t. It’ll still show as a zero balance on your credit report and so it has no additional bearing to your overall credit health.
What happens when you are in credit on a credit card?
Nothing really. Your credit card issuer will earn interest on the money instead of you so this will benefit you. Some providers will automatically transfer the credit balance to your nominated bank account, however, if yours doesn’t, or you don’t have another account set-up, you should give them a call to arrange a refund as if you were to transfer the money, your provider may charge you.
Alternatively, you could just spend it. Any future purchases will come out of the positive balance you’ve built up until you reach the point that you’re borrowing again.
Can I transfer a negative balance from a credit card?
Yes, you can - to a balance transfer credit card. Most people transfer a negative credit card balance to benefit from the interest-free periods most balance transfer cards come with. The advantage? They can focus solely on clearing their debt without the cost of interest slowing them down.
If you’re thinking about doing this though, there are a couple of important things to remember:
1. The introductory periods don’t last forever, so, to make the most of the move, clear your debt before it ends. If you are unable to do this, interest will be applied on the remaining balance.
2. You’ll be charged a fee (usually a percentage of how much you’re transferring) to move your money around. Before this puts you off, work out if the fee offsets the amount of overall interest you’d be paying with your current credit card.
3. Check how much the new provider has offered you to transfer from your negative balance. If you transfer the maximum amount and you have a remaining balance on your current credit card, you could start to clear that balance first before paying towards the new balance that's within the 0% introductory period. This will help you pay off your debts quicker.
Is it OK to max out a credit card?
Although there’s nothing stopping you from maxing out your credit card, it should be avoided at all costs. Here’s why:
- It can cause your credit score to drop - using over 50% might lead lenders to think you’re relying on credit a little too much.
- It can put lenders off which might make being accepted for credit more difficult in the future.
- Getting too close to your credit limit puts you in danger of going over it, which can harm your credit score and result in penalty fees.
- The more you spend, the more you have to repay, and, depending on your credit limit, a maxed-out card could take you years to repay - especially once interest starts adding up.
Overall it's important to only use available credit when you can afford to repay it. If you do not, your debts could spiral out of control.
Can I spend more than my credit limit?
This is another thing that should be avoided because it can seriously interfere with your credit score and result in penalty fees.
For starters, to future lenders, it can make you look like you can’t manage money well and this may make them more likely to decline any future credit application. After all, they want trustworthy borrowers who’ll stick to the terms of their agreement and do not exceed their credit limit.
Breaching your credit limit will also leave a negative mark on your credit report and bring your credit score down, which, can reduce your odds of being accepted future credit such as credit cards, loans, mortgages, or otherwise.
On top of that, overspending on your plastic increases your credit utilisation ratio, opens you up to increased interest being applied and penalty fees.
So, basically, it’s not a good idea.
If you absolutely need to make a purchase that exceeds your credit limit you should either:
- Ask your provider for a credit limit increase, or
- Split the purchase across your credit card, and, say, debit card
- Alternatively, if you do not have the fund available in your bank, you could ask for a increased overdraft to make the purchase. This may prevent you paying any charges.
What happens if you get a refund on a credit card with no balance?
If you cleared your credit card balance and later received a refund for something you put on your plastic, your account will go in credit. As we touched on a little earlier, there are no real benefits to being in credit and the best courses of action are to either:
- Ask your lender to refund it back to your current or savings account, or
- Spend on your credit card until your balance hits zero again.
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