How do credit card refunds work? (2024)

Credit cards are one of the most commonly used forms of payment and offer a convenient way to make a purchase. But if for whatever reason the cardholder wants to make a return and it is within the merchant’s return policy, they should be able to receive a full credit card refund.

Although often a straightforward process, there are several things to be aware of, including the number of business days it will take for your refund to be credited to your account, any associated miles, points or cash back you may lose and how your credit may be affected.

What is a credit card refund?

A credit card refund is a reversal of a credit card transaction where the amount a customer was charged for a good or service by a merchant is returned back to the customer’s credit card account.

How credit card refunds work

If you’ve had a change of heart after making a credit card purchase and want to return the item for a refund, the first place to go (in person or online) is back to the merchant with the required receipt and the item.

If the vendor’s return policy allows for it, the credit card refund process is as follows:

1. The merchant sends the funds from its bank to a credit card network (either American Express, Discover, Mastercard or Visa).
2. The credit card network routes the refund to the credit card issuer (the financial institution that provides the credit card).
3. The issuer credits the cardholder’s account for the returned amount.

How long does a credit card refund take?

There is no set timeline for a credit card refund as it’s based on factors such as the specific policies of the merchant and credit card issuer, along with the cardholder’s return method. Generally, in-person returns are processed more quickly, usually within a few days and with the possibility of a same-day refund, but if the return requires shipping a product back by mail, the process could take longer.

Chargeback vs refund: what’s the difference?

Unlike a refund, which is allowed by the merchant’s return policy, a chargeback is when you dispute a transaction with your credit card issuer related to billing errors or cases where a merchant didn’t honor their terms and conditions. For example, your purchase may have arrived damaged or you’re charged an incorrect amount and the merchant won’t honor their mistake or refund you your money or perhaps a repair wasn’t performed to your satisfaction.

The Fair Credit Billing Act gives you the right to dispute charges within 60 days of the charge appearing on your credit card statement. It also then allows your credit card issuer 90 days to resolve the dispute. You can typically initiate a dispute online within your credit card’s online portal or call the issuer’s number on the back of your card.

What happens to rewards earned from the refunded purchase?

Any rewards you may have earned from a purchase will be deducted in the case of a refunded purchase. Regardless of whether you redeemed points or cash back before the refunded purchase is reflected on your account, your rewards will quickly reflect the return and either be restored to your account or deducted from your rewards balance.

This is particularly important to be aware of when a refund can affect the minimum spend required to receive a welcome bonus. If a refund drops you below the minimum threshold after the promotion’s time period to earn that bonus has expired, your welcome bonus can and likely will be clawed back.

One way to potentially avoid losing rewards after a refunded purchase is to ask the merchant for a refund in the form of a store credit instead of a refund to your credit card. Of course, you’ll still be responsible for paying your credit card balance, but in the case of a welcome bonus scenario, this can be a win-win situation.

How does a credit card return affect your credit?

A credit card return may or may not affect your credit score.

Credit scoring models take into account several factors that include:

• Payment history.
• Credit utilization.
• Length of credit history.
• New credit inquiries.
• Credit types and mix.

Your credit utilization ratio is the amount of credit you’re using compared to how much credit you have available (your card’s credit limit). This is the second most important metric behind payment history that is used in determining your credit score—the lower your debt-to-credit ratio, the better. If you consistently pay your credit card balance in full, a credit card return should not affect your credit. But if you tend to carry a big balance, a large refunded purchase would lower your balance and could potentially improve your credit score.

Frequently asked questions (FAQs)

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