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A credit card is indeed the best financial instrument that brings in a lot of convenience in our daily life. However, there are many concerns and fear associated with the usage of credit cards in UAE. One such concern and fear is the negative balance on the credit card. Well, the word “negative” scares the card members who think that they have probably done something wrong with their card. Contrary to what you might think, carrying a negative balance on your credit card account, commonly known as a credit balance, does not necessarily mean that you have done something wrong or your available credit is decreased. In fact, a credit balance or negative balance on your credit card account could mean that your credit card provider owes you money.
Further, we will discuss why you may have a credit balance or negative balance on your credit cards in UAE and does it have any bad impact on your credit score or not?
Well, you may have a negative balance on your credit card for many reasons. But irrespective of the reason, a credit card balance below zero is not necessarily a bad thing. In fact, it simply means that you have some credit in your credit card account that you can use for purchases in the future up to that amount without paying any additional money. Now coming back to the reasons, here are some of the common ones:
Usually, the excess amount in your card account is adjusted towards purchases and other charges during the next billing cycle & you might end up paying less towards the next bill by that amount. If in case you are going to cancel your credit card then that amount is paid back in cheque or cash to your account by the credit card issuer. However, it depends on the rules and regulations of the respective banks since it varies from one lender to another.
While a negative balance on your credit card may seem like a negative thing for your credit score, it is a neutral situation in actual meaning. By the way, you might be happy to know that negative balance does not take a toll on your credit score. Because in the case of negative balance, the credit card provider owes you money, there will be a drop in the ratio of credit utilization. In return, this is a good sign for your credit score.
While a negative credit balance won’t leave any negative impact on your credit score, it can impact how much you can spend on your credit card temporarily but it does not increase your credit limit. For instance, if you have a credit limit of AED 5000 but a credit balance of AED 100, in that case, you can spend up to AED 5100 on your credit card. But technically, you’re not getting a high credit limit because once you spend the amount of AED 100 on your card, your credit balance will remain AED 0 and your credit limit will still be AED 5000.
A negative balance on your credit cards in UAE is not generally a negative thing at all. In fact, in some cases, it is considered as more of a positive thing. It simply means that you have access to some extra money when it comes to how much money you can spend on your credit card.