What is a Provisional Credit and How Does It Benefit You?

If you are a credit card user, you may have been in a situation where you have seen a charge on your statement that you didn’t recognize or agree with. Maybe you signed up for a free trial of a service and canceled it before the billing cycle came through, but still got charged. Maybe you bought something online and received a defective or wrong item. Worse case scenario is if someone stole your credit card information and made unauthorized purchases with it.

In any of these cases, you may want to dispute the charge and get your money back. But disputing a charge is not always a simple and quick process. It could involve contacting the merchant, filing a complaint, providing evidence, and waiting through an investigation. Depending on the nature and complexity of the dispute, it may take weeks or even months to get a final answer.

So what happens to your money while the dispute is being resolved? Do you have to pay interest and fees on the disputed charge until it is cleared? Do you lose access to your funds until the dispute is settled? How does this affect your cash flow and credit score?

This is where provisional credit comes in handy. 

What is Provisional Credit?

Provisional credit is temporary credit that is applied to your credit card account when there is a dispute or an error about a charge. It’s a way of giving you access to your funds while the bank or the credit card company investigates the issue. Provisional credit can become permanent if the investigation confirms that the charge was incorrect or fraudulent, or it can be reversed if the investigation finds that the charge was legitimate.

Provisional credit is also known as a conditional credit or interim credit. It’s not a refund or a cancellation of the charge, it’s simply the amount of the disputed charge temporarily being placed in your account. It does not affect the original transaction or the merchant’s account.

Provisional credit can become permanent if the investigation confirms that the charge was incorrect or fraudulent, or it can be reversed if the investigation finds that the charge was legitimate.

For example; suppose you see a $100 charge on your statement from an online store that you don’t recognize. You contact your bank or credit card company and claim that this charge is not yours that it’s fraudulent. They start an investigation and apply a $100 provisional credit to your account, usually within 10 business days. Your account balance now shows you owe $100 less than before.

After 30 to 90 days, the investigation concludes that the charge was indeed fraudulent and that someone used your credit card information without your permission. The bank or credit card company will give you that provisional credit permanently. You will not have to pay back the $100. They also notify the merchant and request them to reverse the transaction.

On the other hand, suppose the investigation finds that the charge was legitimate, that the evidence confirms you actually made the purchase from the online store. The bank or credit card company informs you that they will take back the provisional credit. You will have to pay back the $100 plus any interest and fees that may have accrued during the investigation period. They also explain why they denied your dispute and what your rights are.

How to Get a Provisional Credit?

To get provisional credit, you need to contact your bank or credit card company and report the charge that you want to dispute. You will need to provide some proof that the charge was an error or fraudulent, such as:

• A receipt or an invoice that shows a different amount than what was charged.
• A cancellation confirmation or an email that shows that you canceled a service or subscription before the charge.
• A delivery confirmation or a tracking number that shows you did not receive an item that you ordered.
• A police report or an identity theft affidavit that shows that someone stole your credit card information.

Depending on the bank or credit card company, you may be able to report a dispute online, by phone, or by mail. You should do this as soon as possible after noticing the charge, because there are time limits for filing disputes.

Once you report the charge, the bank or credit card company will initiate an investigation and apply a provisional credit to your account. The amount of the provisional credit will be equal to the amount of the disputed charge. You will be able to see the provisional credit on your statement or online account.

How Long Does a Provisional Credit Last?

Provisional credit is not permanent and can be withdrawn at any time if the investigation concludes that the charge was from you. The investigation can take up to 90 days, depending on the type and complexity of the dispute. During this time, you should not spend the provisional credit as if it were your own money, because if you do, you will have to pay it back if the charge is found to be legitimate.

If the investigation confirms that the charge was incorrect or fraudulent, the provisional credit will become permanent and you will not have to pay it back. You will also receive a letter from the bank or credit card company confirming the outcome of the dispute and explaining your rights. For instance you may have the right to request a correction of your credit report if the disputed charge affected your credit score.

If the investigation finds that the charge was legitimate, the provisional credit will be reversed and the money will have to be paid back, even if you spent some. You will also receive a letter from the bank or credit card company explaining why they denied your dispute and informing you of your rights. For instance you may have the right to request an arbitration or a mediation if you disagree with their decision.

In addition to the amount of provisional credit, you may have to pay interest and fees on the reversed provisional credit, depending on your credit card terms and conditions. For example:

If your credit card has an annual percentage rate (APR) of 20%.

A late payment fee of $35.

The $100 provisional credit that was reversed after the investigation.

You might have to pay back ($100 + $3.29 interest) plus $35 late fee, for a total of $138.29.

What are the Benefits of a Provisional Credit?

Provisional credit has several benefits for consumers who face charge errors or frauds on their credit cards. Some of these benefits are:

• It gives you access to the amount of money you are disputing while the investigation is being carried out. This can help you avoid cash flow problems or missed payments due to insufficient funds.
• It protects you from paying interest and fees on the disputed charges until the investigation is completed. This can save you money and prevent your credit score from being affected by late payments.
• It reduces your stress and frustration when dealing with charge errors or frauds. You don’t have to worry about losing your money or being held liable for unauthorized transactions. You can trust that your bank or credit card company will investigate the issue and resolve it the best they can.

If you ever see a charge on your statement that you don’t recognize or agree with, don’t hesitate to contact your bank or credit card company and report it as soon as possible. You may be eligible for provisional credit that will help you out if money is tight.