If you pay more than you owe by accident, you won’t be punished, and issuers are required by law to return your overpayment.
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One of the most important credit card habits is paying your balance on time and in full every month. But it’s also possible to overpay your balance, in which case your issuer owes you money.
In this case, you have paid more than the full amount due on your credit card account. For example, if you have a balance of $100, but pay $200 instead, you’ve overpaid your credit card. This might happen if youve set up automatic payments and then also manually pay the amount due, or if you accidentally type in an extra digit when paying your balance.
The good news is that other than having a little less cash temporarily, there’s no penalty for overpaying a credit card. Plus, you’ll have a few options for getting back the amount you’re owed. Here’s what to know.
It might seem strange to put money on your credit card account since credit cards are meant to be used to borrow money. However, paying off your credit card early can be helpful in some situations. Read on to learn more about what happens when you add money to your credit card and whether it’s a good idea to do so.
Understanding Credit Card Prepayments
Unlike debit cards which draw directly from your checking account, credit cards allow you to borrow money up to a certain limit. You can then pay back the borrowed amount over time. Credit cards are not designed to function like debit cards or accept deposits.
But most credit card companies do let cardholders pay more than they owe and keep a positive balance. When you pay more than what’s due on your bill, the difference is recorded as a credit in your account. Essentially, you are prepaying for future charges.
For example let’s say your credit card statement shows a balance of $1,000. But instead of paying the $1000 due, you pay $1,500. The extra $500 will appear as a $500 credit that can be applied towards new purchases or balances in the next billing cycle.
Potential Benefits of Prepaying Your Credit Card
Here are some potential advantages of adding money to your credit card account:
1. Reduce Interest Charges
One of the biggest perks of prepaying your balance is reducing the interest you pay. This is because you are lowering the amount of credit you are utilizing, which decreases the balance that interest can accrue on.
For example, if your balance is usually $2,000 a month and your interest rate is 12%, you would pay $30 in interest. But if you pay off $1,000 early, that’s all you owe. The interest rate you would have to pay in 2018 would be only $15.
2. Pay Down Debt Faster
Prepaying your balance helps you pay down debt more quickly by lowering your overall balance. In the example above, prepaying $1,000 allowed you to pay off half your debt immediately rather than carrying it over and accruing more interest.
3. Improve Credit Utilization Ratio
The amount of your available credit that you are using is called your credit utilization ratio. For instance, if your credit limit is $10,000 and your balance is $2,000, your credit utilization is 20%.
Experts recommend keeping your utilization below 30%. Prepaying your balance helps lower your utilization, which can boost your credit score.
4. Create a Buffer Against Overspending
Adding a cushion of funds to your credit card can prevent you from incurring interest if you overspend in a month. Let’s say you prepay $500 but then charge $600. You would only owe interest on the additional $100 since the $500 credit covered a portion of the purchases.
5. Enjoy More Flexible Cash Flow
Prepaying your card creates some wiggle room in your monthly cash flow. Since you have already paid ahead, you could use the money you would normally put towards your credit card on other financial priorities.
Potential Drawbacks of Prepaying Your Credit Card
There are also some potential downsides to keep in mind:
1. Opportunity Cost of Funds
When you prepay your credit card balance, you lose out on the opportunity to invest that money or put it in an interest-earning account like a high-yield savings account. You should consider whether you could earn more in returns than what you would save in credit card interest.
2. Less Consumer Protection
One key benefit of credit cards is they provide more fraud protection and ability to dispute charges compared to debit cards or cash transactions. Prepaying your balance reduces this advantage since you already fronted the money.
3. Potential Impact on Rewards
Certain credit card rewards programs only apply rewards to actual purchases, excluding returns and credits. Thus, any amount you prepay would not help you earn cashback, points, or miles.
4. Risk of Overspending
Having extra funds or credit on your card may encourage you to overspend. Make sure you are diligently tracking your balance and new charges if you do prepay your card.
Best Practices for Prepaying Your Credit Card
If you determine prepaying your credit card aligns with your financial goals, here are some tips:
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Only prepay an amount you can comfortably afford. Don’t tie up too much cash.
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Monitor your balance and new charges closely to avoid overspending.
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Consider cards with no prepayment penalties or that offer rewards on credit balances.
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Compare potential interest savings against earning potential in high-yield savings accounts.
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Use autopay or payment reminders to avoid late fees if your balance is prepaid for several billing cycles.
Other Ways to Pay Down Debt Faster
Aside from prepaying your credit card, here are some other debt payoff methods to consider:
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Make additional principal payments whenever possible. Even small amounts help.
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Transfer your balance to a 0% APR card and pay aggressively during the intro period.
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Consolidate debt onto a lower interest personal loan or credit account.
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Ask your issuer for a lower interest rate or hardship program.
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Stick to a tight budget and funnel all extra income towards balances.
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Consider debt management services for personalized payoff plans.
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Increase your income with a side gig if affordable payments are a struggle.
The Bottom Line
Adding money to your credit card account is an unusual tactic but can provide benefits in some circumstances. It helps reduce your credit utilization, interest owed, and speeds up debt repayment. However, it also carries risks like overspending and losing fraud protections. Evaluate your situation carefully and utilize other payoff methods too. When used strategically, prepaying your credit card can accelerate your path to becoming debt-free.
You’ll be credited for your overpayment
When you pay more than is due on an account, your credit line will reflect a negative balance. Taking the previous example, if you owe $100 on your account, but accidentally pay $200, your account will reflect a balance of -$100. In this scenario, a statement credit is automatically added to your account — as required by federal law — that will count toward any new purchases you make.
Once you’ve spent down the statement credit, your account balance will reflect your regular credit line.
You can request a refund
While you can choose to keep your overpayment as credit on your account, you also have the option of receiving a refund by making a request to your issuer. If a written request is made for a refund, your issuer is required by law to send you the amount owed within seven business days of the request.
The process of requesting an overpayment refund will vary widely by issuer, but it generally involves making a request first through the issuer’s website. For example, American Express notes on its site that holders can “request a refund for an overpayment” through their online account by selecting the “Open a Payment Dispute” tab and, from there, selecting “I have a credit balance on my account.”
Note that if there’s any credit remaining on your account for more than six months and you haven’t made a request for a refund, your issuer is required to make a “good faith” effort to refund your money by cash, check, money order or as a deposit into an account.
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FAQ
What happens if you put money in credit card?
In a nutshell Yes, you can be in credit on a credit card, but it isn’t beneficial. Your credit score won’t change, you won’t earn interest on extra money, and you could probably use that money better somewhere else.
What happens if I deposit extra money in my credit card?
In India, there are no fees for overpaying a credit card balance. Excess amounts are refunded upon request, but banks often restrict overpayments to prevent fraud. Overpayments do not incur penalties but may raise fraud concerns if they’re unusually high.
What happens if I put extra money on my credit card?
… amount may cause your issuer to freeze your account while they look into the problem or even close it completely, which could hurt your credit scoreApr 23, 2025
What happens when you add money to a credit card?
By “adding” money to your credit card, whether via ATM or at a bank branch, you’re really just paying off part of your balance, which increases your available funds. Note you can’t put money on your credit card to increase your credit limit.