Author: Marc Klein
December 05, 2023
Getting a refund is usually relatively easy. But there are some ins and outs you should know if you paid with a credit card.
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?
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.
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.
When you get your refund depends on several factors, including:
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.
Have questions about credit card refunds? We have answers:
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.
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.
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.
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.
About the author:Marc Klein
With his eyes set on becoming the next great ad man (at least until his comedy writing career took off), Marc earned his journalism degree and went straight into advertising for various gaming and tourism clients. He later expanded his credentials to include public affairs and communications work for several environmental science organizations before returning to his marketing roots. A lifelong scholar with recent studies in strategic communication, Marc enjoys tying humor into his writing and simplifying complex financial subjects into engaging and easy-to-digest content for a wide variety of audiences.
This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.
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