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How Do Credit Card Refunds Work?

Buyer’s regret happens to the best of us. Perhaps you are not as in love with your purchase as you thought, or the item is defective. With that in mind, this is why credit card issuers allow for credit card refunds.

Making a return on a purchase is a relatively straightforward process, as long as you hang onto your receipts and are mindful of retailers’ return policies.

However, there are certain caveats to keep in mind for credit card transactions, such as the time it takes to see the return on your credit card and what happens to your rewards.

Before you reverse your purchase, there are some factors to consider when making returns on credit card purchases.

Credit Card Refunds and How They Work

To understand how the credit card refund process works, it’s essential first to understand how credit card purchases work.

You do not directly pay the retailer when you buy something with a credit card, at least not at first. Instead, there are two types of companies involved when you make a purchase with plastic: credit card issuers and credit card networks.

A credit card issuer is a financial institution that provides you with a credit card and issues credit to make purchases on their credit card. An example of a credit card issuer would be Visa, MasterCard, or Chase. These companies receive applications from people who want to access their lines of credit, and they issue credit cards to people they believe are responsible enough to have access to credit.

A credit card network is a company that processes the transactions on a credit card and moves funds from the credit card issuer to the retailer. When you make a credit card return, they will also move the money from the retailer back to the credit card issuer.

When you make a purchase on your credit card, the merchant will request payment from the credit card company. The credit card company will send the funds along through the network and request funds from you on your balance. You will then pay your balance in order to pay for your purchase.

When you request a refund, the whole process works in reverse order.

The credit card company will request the network to reverse the funds transfer, and the merchant will return the funds to the credit card company, also known as a chargeback. When the return is complete, the credit card company will post credit to your balance in the amount of the return.

How Long Do Credit Card Refunds Take?

Several variables are involved in the time it takes for a refund to process.

  • One of the top factors that affects return times is the method of return. In-person returns will result in faster refund processing than online returns.
  • Return policies also vary from retailer to retailer, so some retailers may issue refunds sooner than others. You can generally expect a retailer to issue refunds within three to five business days. Still, it may take longer to appear on your available credit because of how credit card returns are processed.
  • Once the merchant issues the refund, you can expect the refund to appear within your account balance within seven business days. However, you may not see it reflected in the billing statement because available and statement balances differ based on the time in the billing cycle when the refund is issued.

If you want to keep track of your available credit, it is best to download your bank’s mobile app and keep track of your transactions there.

Do Credit Card Refunds & Returns Impact Your Credit?

Many credit cardholders are concerned about how their credit card account activity will impact their credit score. If you are worried about the effect a credit card return has on your credit score, it’s essential to understand the concept of credit utilization.

Credit utilization refers to how much of your overall credit limit you are using. Generally, the lower to zero balance you are, the better your credit. However, credit reporting agencies like to see that you have some revolving credit because it proves that you can handle access to credit responsibly.

Making a credit card return will generally not immediately impact your credit score. However, making returns that significantly reduce your overall balance may have a positive effect since it reduces your credit utilization.

There is an aspect of credit card returns that you should keep in mind when considering the impact on your credit: late payments. If you are waiting for a refund and decide not to pay your outstanding balance when it’s due, this can incur a late payment on your credit report.

Late payments significantly affect your credit score because it shows creditors that you are prone to skipping payments. In addition to the impact on your credit, you may accrue late fees for missing payments.

What Happens to My Rewards if I Make a Credit Card Return?

We all know that rewards credit cards make some of the best credit cards. When you have a cash back card or a travel credit card, you will accrue rewards points with your purchases.

Unfortunately, any rewards that you earn from your returned purchases, such as cash back credit, will disappear once you make your return.

If you don’t want to lose the rewards or cash back you earned from your purchase, you can always ask the retailer to refund you in another way. You can ask for store credit instead of a full return. A merchant may be even more willing to offer this since it means they can keep the money earned from your purchase as deferred income instead of returning it to the credit card issuer.

What If I Receive a Refund on a Credit Card with a Zero Balance?

People who are diligent about paying off their credit card balance may notice that they have a negative credit card balance once their return is finalized.

This is because the money returned to your account is not technically going towards paying off a balance. Instead, your refund came through as an overpayment or negative balance.

Negative balances are not a bad thing. All it means is that the credit card issuer owes you money instead of the other way around, which is good!

This means that your credit card essentially works like a gift card. Any future purchases that you make with the card will go toward the negative balance. Once this balance returns to zero, you will begin accruing a balance on your credit card again.

If you end up with a negative balance on a credit card you don’t use very often, the credit card company may issue you a check or money order in the amount of the negative balance. However, overpayment policies can vary from issuer to issuer.

Check your credit card company’s policy when it comes to negative balances to make sure you don’t lose anything.

Is There a Different Way to Get a Refund?

You may be wondering if there is a way to get a cash refund instead of a credit card refund on a purchase.

Unfortunately, most merchants insist on giving refunds in the form of the original purchase.

While this can be frustrating because of longer wait times, it’s still better to use a credit card for larger purchases instead of cash or check.

Credit cards offer certain protections on purchases, which means that you are protected from fraud or other forms of theft. Plus, you can earn cash back or rewards points that can make your purchases stretch even further.

Frequently Asked Questions

What happens if I make a return on a purchase made in a different country?

International purchases may incur foreign transaction fees. Although you may be able to have the amount of your purchase returned to your credit card balance, you may not receive a refund on the foreign transaction fee. 

Where does my money go when I make a credit card purchase?

The movement of your money is not the same for credit cards as it is for debit cards. When you make a purchase with your credit card, the money in your bank account does not move. Instead, the merchant will receive payment from the credit card company through the credit card network. Your money will leave your account when you pay your credit card bill.

Do credit card refunds go toward your required payment?

Any money that is returned to your account balance will not count toward your minimum payment for that billing period. You are also unlikely to receive a refund for the interest incurred from returned items if you make your return beyond the statement period.

What happens if a store offers you store credit instead of credit card refunds?

If a retailer gives you store credit instead of a refund, the charge on your credit card will not change. If the merchant gives you a partial refund and store credit for the remainder of the purchase balance, you will see the partial refund reflected in your credit card statement.

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