No matter how savvy of a shopper you are, returns happen.
However, when you get a refund on a purchase made with a credit card, there are a few considerations to keep in mind. Due to the way credit card transactions work, you may have to wait several days to see your available credit come back. And if you earned rewards, those will likely disappear.
Before you ask for a refund on your credit card purchase, find out everything you should know ahead of time so there aren’t any surprises.
How Does a Credit Card Refund Work?
When you make a purchase using your credit card, you don’t actually pay the merchant. Rather, the merchant is paid by your credit card company.
Once the transaction is approved by your card issuer, your available credit goes down. Even though the merchant has been paid, you aren’t billed by the credit card company until later. So what if you end up returning the item you purchased for a refund?
Since you didn’t pay the retailer directly, it won’t refund you directly. The retailer will issue a refund to your credit card account. This is why you usually can’t receive a refund in any form but the original payment method. It has to go through the credit card company once again.
[Read: Best Credit Cards with High Credit Limits.]
How Long Does a Credit Card Refund Take?
When you make a purchase on a credit card, the purchase amount that hits your account balance will be reflected as a payment requirement on your monthly statement. “However, if you choose to return the item and request a refund, you will not receive cash for this return but a credit equal to the amount of the original purchase on your account,” says Riley Adams, a CPA and owner of the financial literacy site Young and the Invested.
The time it takes to receive that credit to your account can vary widely. Typically, refunds take three to seven business days to appear on your account once they have been issued.
But some circumstances can affect how long a refund takes. The timetable can be much shorter — or much longer. “Ultimately, the time it takes to refund a transaction is dependent on the credit card company and its policies,” says Jim Pendergast, senior vice president and general manager at altLINE, a division of The Southern Bank. Additionally, you could wait much longer on a refund if you mail the item rather than make the return at the store, in part because you have to account for shipping time. That’s especially true if you’re returning an international purchase.
Fortunately, some credit cards offer return protection. With this protection, your card company will still issue a credit to your statement for the purchase amount as long as you meet the requirements, even if you’re unable to return an item directly to the merchant because you don’t meet the merchant’s return rules.
If you’re not just returning an item, but also disputing a charge, it can take up to 150 days for a return to appear on your account. If you take this route, you must notify your card issuer of a problem with your purchase within 60 days of the transaction; the issuer then has 90 days to resolve the issue.
Refund vs. Chargeback
Both credit card refunds and chargebacks are methods for returning money to a cardholder, but they are initiated for different reasons and involve different processes.
A credit card refund is initiated by the merchant or vendor who received the original payment. A refund is issued when you return a purchased item or receive a discount, for instance. The refund amount is credited back to your credit card account, and it typically appears as a credit on your statement.
On the other hand, a chargeback is initiated by the cardholder, and it involves disputing a transaction with the credit card company. Chargebacks are typically initiated when you believe that a transaction was unauthorized, fraudulent or the product or service received was not as described.
In this case, you contact your card issuer to dispute the transaction, and the card issuer initiates a chargeback with the merchant’s acquiring bank. The merchant must then provide evidence that the transaction was legitimate and that you received the product or service as described. If the merchant can’t provide sufficient evidence, the chargeback is typically granted, and your account is credited for the disputed amount.
Downsides of Credit Card Refunds
Getting a refund is generally a good thing, but there can be some disadvantages.
You’ll Probably Lose Your Rewards
Rewards points and other perks earned on purchases that get returned disappear once that return happens.
“Much like the retailer returning the money received for the purchase, the cardholder too must return any associated rewards points,” Adams says.
That’s true of all types of rewards, including sign-up bonuses and other incentives based on spending.
For example, say you needed to spend $3,000 within the first three months of account opening to earn a sign-up bonus. At the end of the third month, you bought a new refrigerator for $800. That brought your total spending just past the $3,000 mark, and you received your bonus soon after. However, a couple of weeks later, you decided that you didn’t like the fridge and ended up returning it. Since the $800 was ultimately refunded, you technically didn’t spend the full $3,000 and would lose your bonus.
You Could Be Stuck With Foreign Transaction Fees
When it comes to international purchases, you could be stuck with any foreign transaction fee that’s charged. That’s because when you make a foreign purchase, it costs your credit card company money.
Though terms vary depending on the issuer, “You should assume the foreign transaction fees will not be refunded because the card issuer needed to make currency market purchases to process your card purchase and incurred a cost to service your needs,” Adams says.
Even so, it doesn’t hurt to ask. In some cases, your card issuer might be willing to refund the fee, especially if the return was made right away and currency values didn’t change much in the meantime.
[Read: Best 0% APR Credit Cards.]
Do Credit Card Refunds Count as a Payment?
According to Pendergast, a credit card refund to your account is considered an account credit, not a payment. That means you’ll still need to make the minimum payment due in order to avoid missing a payment.
Adams adds that if you make a purchase but opt to return the item after your current billing period ends and you end up accruing interest or other related fees on the account in the meantime, the credit would not offset these charges. “In effect, the returned purchase credit will be put on your bill, but the associated interest and fees (if applicable) will remain because of your use of the credit line,” he says.
This is also true if you returned a purchase near the end of your billing cycle, in which case the refunded amount might not show up on your balance before the next payment is due. In this case, you should make at least the minimum payment to avoid a late fee.
However, if you’re already carrying a balance on your credit card when the refund posts, the good news is it will credit the account and reduce the total amount you owe for the next billing cycle.
If you had a $0 balance, the credit will still be applied to your account and will show up as a negative balance. For example, if your balance was $0 and you received a refund of $50, your balance would appear as -$50. That credit is then applied to future purchases. Say you next made a purchase for $70. Your balance would then go from -$50 to a positive $20.
In some cases, you might be able to receive a refund from your card issuer rather than an account credit. That’s especially true if you need the money immediately to cover other bills, or it’s a card you don’t use often and end up with a negative balance for several months. In this case, you can call your issuer and ask to have a check mailed for the difference.
[Read: Best Credit Cards for Excellent Credit.]
How Does a Credit Card Return Affect Your Credit?
A credit card refund is generally good news for your credit score, since it helps lower your total outstanding balance. “Amounts owed” accounts for 30% of your credit score, and the less credit you use in comparison to the total amount of credit extended to you, the better. A low credit utilization is a sign that you aren’t overly dependent on credit to cover your expenses.
For example, if your credit limit is $1,000 and you are carrying a balance of $300, your credit utilization would be 30%. If you then make a return for a $100 refund, your utilization would drop to 20%, helping improve your score. The key is for the return to process before your balance is reported to the credit bureaus. Otherwise, your card will reflect the higher balance even though a return is on its way.
Reviewed on May 15, 2023: This story was previously published at an earlier date and has been updated with new information.
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How Do Refunds Work on a Credit Card? originally appeared on usnews.com
Update 02/27/23:
