How Do Credit Card Refunds Work?

Introduction

We’ve all been there … you make a purchase only to decide to return it for one reason or another. It happens.

The merchant’s return policy will determine whether you get a refund, a store credit, or if you’re even able to return an item. Your method of purchase also has an impact. For example, if you used your debit card, the refunded money goes right back into your bank account as if you never bought that sweater you thought was navy blue but turned out to be more of a royal blue. Easy peasy.

But how does it work if you bought that sweater with a credit card?

What Is a Credit Card Refund?

When you return an item that was purchased with a credit card, you won’t receive any actual money back. Instead, you’ll be reimbursed in the form of a credit card refund. Why? Because of how credit card purchases work.

Super summed up version: when you tap, swipe, or insert your credit card, the merchant requests a payment from the card issuer, and you pay the issuer back at a later date. You’re essentially borrowing money.

If you’re returning a credit card-purchased item, that process works the same way, but in reverse. You return the sweater, the merchant asks the credit issuer to credit you for the returned amount, and the issuer posts that credit to your account. Still relatively easy peasy … just no cash involved.

Refunds vs. Chargebacks

A credit card refund is when you receive a credit on your account after returning an item purchased with a credit card. A chargeback, on the other hand, reverses a charge after you’ve successfully disputed the transaction with your credit card issuer.

The key difference is the dispute.

You can dispute a charge for various reasons, such as billing errors, if you have a complaint about the quality of the item you purchased, or if the merchant refuses to refund an item.

If going straight to the merchant doesn’t solve the issue, then disputing the purchase with your credit issuer and asking them to reverse the charge (initiating a chargeback) is another option.

How Long Does a Credit Card Refund Take?

When you get your refund depends on several factors, including:

• The merchant’s return policy – Do they even offer refunds? If so, how quickly do they process them?
• When and how you return the item to the merchant – If you return it right away — in person — it should speed up the process. But if you have to ship that item, it could delay things due to delivery time.

With that said, a refund typically takes five to 14 days. But this can always vary. The best way to find out exactly how long it will take is to contact the merchant and ask, or check their online FAQ.

FAQ for Credit Card Refunds

Have questions about credit card refunds? We have answers:

Do you get to keep any rewards earned from the purchase?

Not likely. Odds are, when you return an item, any rewards you earned for that original purchase (such as cash back rewards or points) will be deducted from your rewards balance. Read your credit card’s terms to verify.

How does a credit card refund affect your credit?

It’s important to remember that waiting for a refund to process doesn’t eliminate the need to pay at least the minimum amount on your balance. Making timely payments is one of the most important things you can do to build a positive credit score.

A credit card refund can also impact your credit utilization ratio (CUR) — which measures how much of your credit you’re using. The lower your CUR, the better for your credit score, but experts recommend you at least keep it below 30%.

So, if a refund reduces your CUR to below 30%, it can give your credit score a boost. On the other hand, if a refund takes a long time to show up in your account, your credit score can be harmed if that purchase amount bumps you over 30%.

For example, if you’re carrying a $300 balance with a $1,000 credit limit, your CUR is 30%. If you get a $200 refund, your CUR drops to 10%, which is good for your credit score. But, if you’ve got that same $1,000 limit and a $400 balance while waiting for the $200 refund to show up, your CUR is 40% and not great for your credit score.

What happens if you get your refund after paying your balance?

If you receive a refund for a returned purchase after you’ve paid off your balance, it will show as a negative balance on your account. This means the issuer owes you that amount and it can be applied to a future purchase or purchases.

Bottom Line

Whether you thought that blue sweater you bought was a different shade, it didn’t fit, or there was a hole in it, returns happen. Such is life.

Thankfully, you can typically return purchased items for a refund … even if you used a credit card. Just know that the process for a credit card refund may take a little bit longer compared to a cash or debit card transaction. And be aware that you still need to pay your credit card balance while you wait for your refund to process.