Let’s say you bought a ticket to Europe last year, but you need a refund because your flight was canceled. The airline charges the fare to your credit card, resulting in a negative balance on your card. Returned or returned purchases don’t just lower your account balance, though. They also reduce your rewards balance.
Specifically, many credit card issuers are deducting rewards for returns and refunds. If you already have a low rewards balance, these refunds can cause it to fall into the negative. Here’s what you need to know about negative reward balance credit cards.
How does a negative reward balance happen
We generally do not recommend accumulating your reward points and miles. However, if you use your points frequently, you may see your rewards balance become negative.
So, how does this happen? As it turns out, most credit card issuers will deduct rewards for the following three reasons.
Returns and refunds
As mentioned, many credit card rewards programs remove rewards for returns and refunds, which can lead to a negative balance. However, the return will not affect your credit card account if you are able to protect the voucher or maintain credit in lieu of the refund.
Most retailers are happy to issue a voucher instead of a refund.
Conversion of prizes
Most credit card rewards programs reserve the right to revoke rewards if the cardholder abuses the rewards program. For example, American Express has refunded rewards earned on your personal transfers in the past. If something like this happens to you, you may have a negative reward balance if you’ve already spent points.
Related: Biden administration unveils tough rules for airline refunds, upfront prices
Rebates offered
Finally, your rewards balance may be negative if your issuer reverses your welcome offer. For example, American Express has withdrawn welcome offers from cardholders who cancel or downgrade within 12 months of activation.
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You may also lose your welcome offer if you return or refund the purchase that helped you qualify for that offer. After all, a single return or refund may subject you to minimum spending requirements to take advantage of the offer.
Related: Here’s why you should never close your credit cards before the one-year mark
How negative reward rates are handled for all issuers
Most rewards programs don’t provide much information about negative reward balances in their terms, so I contacted three major credit card issuers to get some answers. Here’s what I learned.
American Express
When you return or refund your purchase, you will usually receive a statement credit on your American Express card. This statement credit will trigger the deduction of points from your account.
Additionally, you may also lose your welcome offer. Specifically, an American Express spokesperson told TPG:
If the card member returns or cancels a purchase made to meet the threshold value of the welcome offer, we will not be able to credit the rewards to the account.
Based on the Amex membership rewards policy, if you have an incorrect point balance, American Express will apply any points you later earn to that balance. So, although it may say the obvious, you won’t be able to redeem any points until your balance becomes positive.
But what if you want to cancel your card? There are a few reports online of card members being charged a negative rewards balance when closing the card. However, when asked about one of the reports, an American Express spokesperson said:
No; this is not normal. American Express does not charge cardmembers points after their card is canceled.
You will not be charged a negative rewards balance if you cancel your card. But you may want to make your reward balance positive before closing your account. After all, American Express’ takes potential harassment seriously, and you don’t want to damage any future relationships.
Related: Who should (and shouldn’t) get American Express Platinum?
Capital One
From my conversation with Capital One:
If you receive a refund on your card, any rewards you earned on the original purchase will usually be removed from your rewards balance.
One of the online forum users reported that Capital One did not charge them to close the account with a negative rewards balance, but the negative balance was very small.
Chase
If you return a purchase, Chase will deduct the rewards originally earned from those earned on other purchases. As a result, you may see a negative rewards balance in your account.
Chase says:
Reward points earned through purchases will be deducted from your earnings (which may include bonus points) once the transaction is posted to your account. If you have used all of your reward points before making a refund, this will show up as a negative balance in your reward points accumulation on your online portal.
One online forum user reported that he was able to close his account with an Ultimate Ultimate Rewards point balance.
Citi
According to Citi’s ThankYou Rewards terms and conditions, you will earn points on purchases minus returns and refunds. These terms also note that if your points balance becomes negative, the program will use all the points you earn from that balance.
You can link to information about fraud, abuse, harassment and suspicious activity on many of Citi’s claims pages. Specifically, if Citi sees evidence of these activities, it may:
- Claim your accumulated ThankYou Points.
- Preventing you from earning Thank You Points.
- Suspend or close your ThankYou card or account.
- Take legal action to recover redeemed prizes and recoup financial losses.
Therefore, if you close a card with an incorrect point balance, Citi may or may not attempt to refund any redeemed rewards. Either way, you’ll want to wait to close your account if your point balance is positive.
In summary, it seems that, for all listed issuers, closing an account with a negative reward balance is handled on a case-by-case basis.
Related: The ultimate guide to Citi ThankYou Rewards
Bottom line
If you use your credit cards as intended, you probably won’t have problems with a rewards balance going bad. I once had a negative reward balance after receiving a refund for a canceled flight. But, my spending the following month easily brought my rewards balance back into the good range.
Some cardholders have reported experiencing no negative consequences after closing a card with a small negative rewards balance. However, I would recommend that you get your rewards balance positive before closing your credit card account.
Related: Why I closed my first credit card and what I would have done differently now
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