What Is it a credit balance? Understand the concept and learn how to use it to your advantage!

You've probably come across the term "credit balance" when checking your credit card statement, bank statement, or even your digital wallet. This balance, while common in financial transactions, can raise questions. To understand what it is and how it can affect your finances, continue reading and learn more about credit balances.

What is a credit balance?

A credit balance is a positive amount that appears on bank accounts or bills. In a checking account, for example, it occurs when the amount deposited exceeds the amount withdrawn or debited, leaving the account "in the black." Essentially, this balance reflects how much money is available for the account holder to use.

When a bank account has more credits than debits, this positive balance is considered a credit balance. It's important to remember that it's not tied to debts or financial obligations, but rather to an extra amount available for use.

How does the credit balance on a credit card statement work?

Just like a bank account, a credit balance on a credit card statement indicates that an amount exceeding the total due has been paid. This can occur for a variety of reasons, such as overpaying or receiving a refund for a canceled purchase.

For example, if your credit card bill totaled R$$500 and, for some reason, you paid R$$600, the additional R$$100 will appear as a credit balance on your next bill. This amount can be used to deduct from the next bill, meaning that if your next bill is also for R$$500, the amount due will be R$$400, after the credit balance has been deducted.

Differences between credit balance and debit balance

A credit balance represents a positive amount available to the account or invoice holder, while a debit balance occurs when there is an outstanding debt. In the case of a credit card bill, if the total amount due is R$$500 and the payment made is only R$$450, the remaining R$$50 is considered a debit balance.

This outstanding balance will be included on the next bill, with interest and penalties added, resulting in a higher charge. This situation is common with revolving credit, which allows partial payment of the bill but charges high interest rates. According to the Central Bank, in 2022, revolving credit interest reached 409.3% per year, one of the highest rates on the market.

How to use your credit balance to your advantage

Many people choose to pay higher amounts on their credit card bills to increase their available credit limit. However, this practice can harm long-term financial planning. Using an emergency fund to increase your credit limit can reduce your liquidity in critical times.

To optimize the use of your credit balance, it's important to maintain a balanced finances, avoiding spending more than necessary. A credit balance can be useful in some situations, such as ensuring a margin for planned purchases, but it shouldn't be used as a regular strategy to increase your credit card limit.

Tips for increasing your credit card limit

If your goal is to increase your credit card limit, some practices can help without having to generate a recurring credit balance. One of the main tips is to always keep your bills up to date, paying the full amount by the due date. This demonstrates financial responsibility to the card issuing institution.

Another effective way to increase your credit limit is to make more purchases with your credit card. This demonstrates your repayment potential and can lead to an increase in your credit limit. Furthermore, maintaining a good relationship with your financial institution, without late payments or defaults, is a determining factor in improving your credit limit.

Finally, you can request an emergency credit limit increase directly from your card issuer if you need to make a large purchase. Before requesting an emergency credit limit increase, it's important to check for associated costs and evaluate whether the requested increase will truly benefit your financial planning.