When you buy something using a credit card, that purchase represents a debit, or charge, against your account. It increases your bill. A credit is the opposite. It's an amount that reduces your bill and may appear on your credit card statement with the letters "CR" next to it, which is the abbreviation for "credit." You can receive a credit on your credit card statement for several reasons.
An overpayment occurs when the payment on your credit card bill exceeds the total amount you owe. For example, if your bill is $399.50 and you make a payment of $400, the 50 cent difference will show up as a credit on your credit card statement. A credit reduces how much you owe in the future. In this example, any upcoming balance should be reduced by 50 cents.
If you return an item you've purchased, the merchant will generally refund the purchase amount using the same method of payment you used to buy the item. If it was a credit card, the merchant will issue a credit back to your credit card for the refunded amount. This credit will generally appear on your next statement. This credit reduces the amount owed on your credit card bill and increases the amount of your available credit.
A credit balance means you owe nothing on the account but have a surplus credit on the card. For example, you paid your credit card bill down to zero and later received a sizable merchant credit on the account for a returned item. If your account has a credit balance, the card issuer may use that balance to reduce your upcoming bill for any future charges that you make. However, card issuers may permit cardholders to request a cash payout of a credit balance; in that case, the credit issuer will send you a check for the amount of the credit balance. Card issuers are generally not required to issue a check for a credit balance amount that's less than a dollar. If the credit balance remains on the account for more than six months, the card issuer must make a good faith effort to send a refund check to you, whether you request it or not. Each card issuer has its own policy regarding how credit balances are handled, so check your credit card agreement.
Credit card statements sometimes have errors. A merchant may erroneously post a credit to your credit card account twice. Or you may not have received a credit that you were due. If you believe your credit card statement is inaccurate, you have up to 60 days from the date of the statement to contact the credit issuer in writing to dispute the mistake. The credit issuer then has up to 30 days to acknowledge the dispute unless it corrects the mistake during that time. It then has up to two billing cycles -- but no more than 90 days -- to correct the mistake or explain to you in writing why it believes your bill is correct.
- credit card image by jimcox40 from Fotolia.com