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Other => Off-topic => Topic started by: dissipate on September 21, 2012, 07:24:17 PM



Title: How does a credit card with a positive balance work?
Post by: dissipate on September 21, 2012, 07:24:17 PM
I found out the other day that a credit card can actually have a positive balance if you pay more than what is owed on the card. I wasn't able to find out more about this strange fact on Google, and I had some questions about it.

What does the bank do with the funds that make up the positive balance? They don't pay you interest on the positive balance. Do they loan those funds out?

If you don't go below your positive balance, does this still help your credit score?


Title: Re: How does a credit card with a positive balance work?
Post by: SgtSpike on September 21, 2012, 07:27:05 PM
I found out the other day that a credit card can actually have a positive balance if you pay more than what is owed on the card. I wasn't able to find out more about this strange fact on Google, and I had some questions about it.

What does the bank do with the funds that make up the positive balance? They don't pay you interest on the positive balance. Do they loan those funds out?

If you don't go below your positive balance, does this still help your credit score?
Weird... so it's like, a prepaid debit card without fees?  :D


Title: Re: How does a credit card with a positive balance work?
Post by: dissipate on September 21, 2012, 07:29:29 PM
I found out the other day that a credit card can actually have a positive balance if you pay more than what is owed on the card. I wasn't able to find out more about this strange fact on Google, and I had some questions about it.

What does the bank do with the funds that make up the positive balance? They don't pay you interest on the positive balance. Do they loan those funds out?

If you don't go below your positive balance, does this still help your credit score?
Weird... so it's like, a prepaid debit card without fees?  :D

Seems like it, but apparently not all banks allow you to overpay. However, I think you can still get a positive balance via refunds (e.g. you buy stuff with your credit card, pay it off at the end of the month but then return merchandise and get a refund).


Title: Re: How does a credit card with a positive balance work?
Post by: Stephen Gornick on September 21, 2012, 08:57:46 PM
Do they loan those funds out?

It is probably such a minimal amount it isn't even worth tracking.

If the card is being used, the credit balance from the overpayment is reduced with each charge.

I read that with American Express if for a third month in a row there is a credit balance on the statement a check gets cut to bring the balance to zero.


Title: Re: How does a credit card with a positive balance work?
Post by: dissipate on September 21, 2012, 09:17:43 PM
Do they loan those funds out?

It is probably such a minimal amount it isn't even worth tracking.

If the card is being used, the credit balance from the overpayment is reduced with each charge.

I read that with American Express if for a third month in a row there is a credit balance on the statement a check gets cut to bring the balance to zero.

What do you mean by 'tracking'? Nominally there must be a significant amount of positive credit card balances if we are talking about a multi-billion dollar industry. That money is sitting somewhere. Is it literally just sitting there or does it get loaned out, put in low risk securities, or what?


Title: Re: How does a credit card with a positive balance work?
Post by: Stephen Gornick on September 21, 2012, 09:29:08 PM
What do you mean by 'tracking'?

If the issuer reports financials, they would probably net the customers with debit balances with the amount from customers with credit balances and report a single amount on their assets side (e.g., as a receivable).  i.e., it probably is such a small amount that they can report it net, and not break it out on their balance sheet.

But who knows.
 

Nominally there must be a significant amount of positive credit card balances if we are talking about a multi-billion dollar industry. That money is sitting somewhere. Is it literally just sitting there or does it get loaned out, put in low risk securities, or what?

I've no idea.  Each time the issuer pays to settle a customer charte, that amount either comes from their capital or they borrow,   I would suspect your overpayment simply means they use less capital or borrow less as a result.     Maybe they put it into a separate account, ... I doubt it though.  


Title: Re: How does a credit card with a positive balance work?
Post by: dissipate on September 21, 2012, 10:22:01 PM
What do you mean by 'tracking'?

If the issuer reports financials, they would probably net the customers with debit balances with the amount from customers with credit balances and report a single amount on their assets side (e.g., as a receivable).  i.e., it probably is such a small amount that they can report it net, and not break it out on their balance sheet.

But who knows.
 

Nominally there must be a significant amount of positive credit card balances if we are talking about a multi-billion dollar industry. That money is sitting somewhere. Is it literally just sitting there or does it get loaned out, put in low risk securities, or what?

I've no idea.  Each time the issuer pays to settle a customer charte, that amount either comes from their capital or they borrow,   I would suspect your overpayment simply means they use less capital or borrow less as a result.     Maybe they put it into a separate account, ... I doubt it though.  

The plot thickens...

One thing is certain, the money from a credit card's positive balance has to go somewhere. Maybe it is like a savings account that doesn't pay interest where the bank just uses positive credit card balances to make credit card loans to other credit card customers?