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How Does a Credit Card Refund Work

Last Updated: October 15, 2024

5 min read

Table of contents

Key Points:

A credit card refund is when you have the purchase amount of a returned item added back to your credit card account.
Your refund might post to your credit card account immediately or in a few days depending on your credit issuer.
Your credit card refund usually doesn’t impact your credit score.

So, you purchased something on a credit card, and you need to make a return. What happens next? Returning the item itself may be easy enough (depending on the store’s refund policy), but how you receive your refund will look different than it does when you make a return on a debit card or with cash. Usually, if you make a return with a debit card, the money goes back to your bank account, but how does that work with a credit card account?

How do refunds work on a credit card?

Credit card refunds look different from a refund you would get on a debit card or even a cash refund because of the way credit card purchases work.

Unlike a debit card or cash purchase, a transaction made with a credit card isn’t made with your own money—a credit card purchase is paid with funds from your credit card issuer. Therefore, a refund from a purchase on your credit card will return to the account and not directly to you in cash.

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Take, for example, a sweater you bought online. When you make the purchase with your credit card, the merchant asks for payment from your credit card company. Your card issuer will pay the retailer and add the purchase amount to your account balance. You then pay the credit card issuer back when you pay your credit card bill at the end of the month.

If you decide to return the sweater, it works the same way, but in reverse. The merchant will refund the purchase to the credit card company, not you, directly. Your credit card issuer will then credit your account for the refund amount.

How does a credit card return affect your credit?

A credit card return may or may not affect your credit score. To understand why, it’s important to know about your credit utilization ratio.

Your credit utilization ratio is the amount of your credit you’re using compared to how much is available to you on your credit line. Your credit utilization is a key factor in determining your credit score, and the lower you can keep your credit card usage, the better.

Let’s say you have a $100 balance on your card that has a $1,000 credit limit. Your credit utilization is 10%. But then you return a pair of shoes for $25. Your new credit card balance after the refund is $75, making your credit utilization only 7.5%.

Whether a credit card refund helps your credit score can also depend on when your credit card issuer processes and credits the refund to your account. If there’s a delay in your credit card refund, it may hurt your credit score if the purchases push your credit utilization higher at a point in your billing cycle when your card issuer reports your activity to the credit bureaus.

Does a credit card refund go toward your required payment?

Credit card refunds don’t count as payments toward your monthly bill. Instead, they’re added to your account as a statement credit.

If your refund has not been credited back to your account by the time your credit card bill is due, you’ll still have to at least make the minimum credit card payment.

Does a refund on a credit card affect my rewards?

If you have a rewards credit card—a credit card where you earn cash back or Miles when you spend–any credit card rewards you earned on a purchase that was returned won’t be awarded after your refund is processed.

Did you know?

If you’d like to keep the credit card rewards you earned on a purchase, instead of asking for a refund to your credit card, you can ask the merchant to refund you in the form of store credit. However, that means you’ll still have to pay for the purchase on your credit card.

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How long does a credit card refund take?

There’s no set time for how long it might take for your refund credit or chargeback to show up on your account. Some refunds might show up right away and other refunds can take a few days. The time it takes to refund a transaction depends on your credit card company and their policies.

What happens if you have a negative balance after a refund on your credit card?

If you pay your credit card balance in full every month, you may run into a situation where a returned item can lead to a negative balance on your credit card. (Remember, a negative balance on a credit card means that you’ve paid more than the amount of credit issued to you, so you actually have more credit available to spend on your account.)

For example, say you have a zero balance on your account after you pay your credit card statement. If your credit card company refunds an item that costs you $23, your refund amount may show up as -$23. All this means that you have more credit available in your account than your current credit limit.

Can a negative credit card balance impact my credit score?

A negative balance is typically not a problem. Usually, the balance will apply to your next credit card purchase, eventually bringing your balance back to $0 or more. A negative credit card balance typically doesn’t affect your credit score or credit report because it’s not something that credit card companies report to credit bureaus.

Still, a negative balance can create an issue if you get a large refund on a card you don’t use anymore or use rarely. In that case, you’re unlikely to make purchases that could apply to that balance. In this case, you can ask your credit card company to give you the refund via a check, money order, or direct deposit. Your credit card issuer may require that you submit your refund request in writing before sending the funds.

Some credit card companies automatically issue a refund check back to the cardmember for the negative balance (overpaid) amount, which will then bring your credit card balance to zero. When this happens, any future purchases you make will apply as normal to your credit card, and you’ll be responsible for paying them off. This is just one more reason why it’s important to check your credit card statements every month, so you know the outstanding and available balance is on your card.

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