When you get a refund on a credit card purchase, you usually see the refund in your account within a few days. However, you’ll likely lose any rewards you earned on the purchase.
It’s good to understand the timelines, how rewards are affected and what happens with sign-up bonuses when you get a credit card refund. Here’s what you need to know before you request a refund on your credit card.
How Credit Card Refunds Work
You don’t pay the merchant when you make a purchase using your credit card. Rather, the merchant is paid by your credit card company.
Once your card issuer approves the transaction, your available credit goes down. Even though the merchant has been paid, the credit card company doesn’t bill you until later. So what if you return the item you purchased for a refund?
Since you didn’t pay the retailer directly, it won’t refund you but will issue a refund to your credit card account. This is why you usually can only receive a refund in the original payment method. It has to go through the credit card company once again.
“If you choose to return an 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 certified public accountant and owner of the financial literacy site Young and the Invested.
[Read: Best Credit Cards.]
How Long Does a Credit Card Refund Take?
Refunds typically take about three business days to appear on your account. However, the time to get a refund on your credit card depends on the issuer and merchant policies. Getting a debit card refund may be slightly shorter — as little as one business day — because the funds are returned directly to your bank account.
Factors that affect credit card refund timelines include:
— Merchant refund policies and processing times
— Whether the purchase was returned in-store or online, as shipping and inspection can add to refund time
— Issuer timelines for processing refunds
— Currency exchange processing for international purchases
Generally, if you haven’t received a refund within 10 business days, you should contact your card issuer and the merchant for an update.
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.
Credit Card Refund vs. Chargeback
Credit card refunds and chargebacks are both methods for returning money to a cardholder. A refund is credited back to your account when you return an item or the merchant grants money back on your purchase.
A chargeback occurs when a cardholder disputes a transaction with the credit card company and wins the dispute. Chargebacks are typically initiated when you believe that a transaction was unauthorized, fraudulent, or the product or service received was not as described.
To get a chargeback, you contact your card issuer to dispute the transaction, and the card issuer initiates an investigation 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. The chargeback is typically granted if the merchant can’t provide sufficient evidence, and your account is credited for the disputed amount.
Issuers typically allow a 60-day window to file a dispute. You’ll likely need to provide evidence to support your dispute, such as receipts or email correspondence.
[Read: Best 0% APR Credit Cards.]
Downsides of Credit Card Refunds
Getting a refund is generally good, 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. 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 opening your account to earn a sign-up bonus. You bought a new refrigerator for $800 at the end of the third month. That brought your total spending past the $3,000 mark, and you received your bonus soon after. However, you decided you didn’t like the fridge a few weeks later and returned it. Since the $800 was ultimately refunded, you technically didn’t spend the full $3,000.
You could lose your sign-up bonus if a refund puts your spending back under the bonus threshold, but some issuers provide flexibility if the refund was processed after the bonus was awarded.
“It’s rare that credit card companies will claw back any sign-up bonus, though they may look through your account for any suspicious behavior,” says Ryan Duitch, founder and CEO of Arro, a financial services company with a credit-builder card.
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. It costs credit card issuers to convert currencies and post transactions, so you should assume you won’t get a refund for foreign transaction fees.
Even so, it doesn’t hurt to ask. Sometimes, your card issuer might be willing to refund the fee, especially if the return was made immediately and currency values didn’t change much.
[Read: Best Credit Cards with High Credit Limits.]
Do Credit Card Refunds Count as a Payment?
A credit card refund to your account is considered an account credit, not a payment. It doesn’t count toward meeting your minimum, so you’ll still need to make the minimum payment to avoid missing a payment.
Refunds reduce your account balance but don’t replace the need for a payment in your current billing cycle. For example, if your balance is $500 and you make a $200 return, your balance becomes $300. However, it’s not as if you made a $200 payment, and you must pay at least the minimum payment by the due date.
Keep timing in mind, as a refund that posts after your statement closing date won’t appear on your current billing cycle and will not reduce the amount you owe for that period. If you return an item close to your payment due date, the refund may not be reflected in time for you to avoid paying for the purchase on that bill.
If a refund results in a negative balance, you can leave it as a credit for future purchases or request a check or direct deposit refund from the issuer.
How a Credit Card Return Affects Your Credit Score
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 compared with 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 have 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 processing the return before your balance is reported to the credit bureaus. Otherwise, your card will reflect the higher balance even though a return is coming.
If You Can’t Get a Refund
If a refund is delayed beyond 10 business days, contact the merchant to confirm the refund has been processed, then check with the credit card issuer to ask for an update on the refund processing. If you don’t receive the refund because of merchant inaction or refusal, consider filing a dispute with your credit card issuer.
Some credit cards offer return protection benefits, which allow you to receive a refund even if the merchant denies the return.
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How Do Refunds Work on a Credit Card? originally appeared on usnews.com
Update 01/21/25: This story was previously published at an earlier date and has been updated with new information.