Urban myth. True or false?

lightwave_2

There is a summary of responses at the end of this post (#1)

This may start a long yes/no discussion on the topic (or, hopefully, someone will have a definitive answer);

Is it bad for your credit rating to have your credit card "in credit"?

I've Googled, and I don't think I'm a bad Googler, but I couldn't find anywhere that could suggest an answer. I refined my query until I got to credit card "in credit" -transfer but still found nothing useful. Nevertheless, I digress.

On the one hand, I think over the years I've heard this from several people. "It's actually harmful to your credit rating to have your credit card in credit - don't do it!"

However, conversely I recall reading somewhere (yes, that old adage) that if you have a credit card with favourable terms for use abroad, you should load it with credit before you travel so you have more to spend on it. That might have been on MSE, years ago in fact.

Anyway, I'll kick off the debate, shall I? If you have a credit card with a zero balance, and then receive a refund for a previous purchase, this would put your account in credit. While no means definitive proof against the myth, this must be a common occurance, as has happened to me this month.

I open the floor to your thoughts...

EDIT: SUMMARY OF RESPONSES

- Deliberate pre-loading your credit card with credit won't adversely affect your credit score, but is a breach of terms and conditions (always check your terms). (See Martin #16)

- If you receive a credit on your account for example by refund, this seems to be fine. Many people have reported credits on their accounts showing on credit reports as £nil balance. (See #6, #8, #12, #24)

- A credit card that's in credit will not be covered against fraud by the Consumer Credit Act 1974 while in credit. (See #14, #15, #18)

- Opinion: There's potential that substantial or frequently pre-loaded accounts could be frozen pending a fraud investigation into money laundering, though nobody has reported this. (See #7, #11)

BugsyBrowne

To many factors to take in to give a definite answer.

dzug1

You could check your credit report in a couple of months time to check if it's been noted. I seriously doubt it if it will be.

Deliberate preloading is inadvisable though - yes people do it and get away with it, but it's against the T&C of most (?all?) cards and can lead to problems for you unrelated to your credit rating.

YorkshireBoy

lightwave wrote: »

Is it bad for your credit rating to have your credit card "in credit"?

No.

However, conversely I recall reading somewhere (yes, that old adage) that if you have a credit card with favourable terms for use abroad, you should load it with credit before you travel so you have more to spend on it.

Two of the most popular cards for overseas use, Santander Zero (no longer available?) and Halifax Clarity, specifically prohibit 'pre-loading' in their T&Cs.

lightwave_2

So there are two scenarios;

1. You receive a refund as a credit on your account, and this is fine. It shouldn't breach T&Cs of the account, and likely won't affect your credit rating (how could it?)

2. Pre-loading your card with credit probably won't affect your credit rating, however it could breach the T&Cs of the card - check your terms.

Sounds like along the way somewhere, preloading turned into "any credit on your card", and breaching terms turned into "bad for your credit rating".

Unless anybody has some evidence to the contrary (regarding negative impact on your credit rating, for in-credit credit cards), I think this one's busted.

Thanks to dzug1 and YorkshireBoy. I wasn't aware about pre-loading in terms.

Mr_Terrific

I've inadvertantly had my credit card in credit (transposed digits when paying the balance) and it had no effect on my credit report.

thenudeone

I don't know the effect on credit reports but it will usually cause problems is it's done to any significant degree, because of the regulations surrounding deposit-taking and money laundering.

You could find the card (and the "in-credit" funds) frozen whilst they investigate - giving you the worst of all scenarios, especially if you don't have another card to rely on - no credit card and no funds to buy things with either.

ylesia

I have significantly done this once. Was having a bad week and managed to pay credit card bill twice lol! End result was the card was £900 in credit. I phoned Halifax and they weren't in the slightest bit bothered! I still got my £5 for spending more than £300 the following month, even those the balance was still in credit!

It had no effect on my credit rating

Plxply

I don't see it affecting your credit rating in anyway, wouldn't it just show that your up to date with your payments and your payment history will be positive? As long as you've been paying your debts and don't have too much credit I doubt it will matter, although if you constantly do it you may get a call from your card issuer.

InsideInsurance

The "problem" is that rating is actually decided by each lender individually and whilst there are some commonalities, defaults never being seen as a good thing, the intricacies like credit balances being a good, neutral or bad thing is going to be too different for a rule.

If your talking a few pounds here or there there is probably no problems. If you have a £1,000 and your credit report shows you frequently are putting it into a £3,000 credit then it starts begging questions. If the person can afford all of this why arent the other card issuers increasing limits? What do they know that we dont? It could be the card holder keeps rejecting increases but do you want to take that risk? If they are able to afford so much why are they wanting to extend their lines of credit?

System

It won't impact your credit history but it could lead to your leader revoking your account (as not putting a credit card into credit is against the terms and conditions of most credit cards) This is for two reasons firstly money laundering risk and secondly that the systems for most credit cards aren't built to be in credit.