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Credit Card Basics

How Do Credit Card Refunds Work?

The pale-yellow drapes you ordered online turn out to be screaming neon. The new patio table collapses just as your family sits down to dinner. The fancy face cream you splurged on gives you a rash. There are many reasons you might want to return a purchase and get your money back. If you bought the item with a credit card, you'll get reimbursed in the form of a credit card refund. A credit card refund happens when you return a product you purchased using a credit card and get a credit to your account. Here's what to know.

What Is a Credit Card Refund?

To understand how credit card refunds work, it's important to know how credit card purchases work. There are two types of companies involved in every credit card transaction: credit card issuers and credit card networks.

  • Credit card issuers: The financial institutions that provide credit cards and lend cardholders the money they need to make purchases with the cards.
  • Credit card networks: Companies that process these transactions, electronically moving the money from the credit card issuer to the merchant and vice versa.

When you buy something with a credit card, the merchant requests payment from the credit card issuer, not from you directly. The card issuer pays the merchant and adds the purchase amount to your account balance. You then pay the credit card issuer.

Returning a purchase works the same way, but in reverse. When a retailer issues a refund, the money doesn't go directly to you. (This is why most merchants won't give you a cash refund for a purchase made with a credit card.) Instead, they ask your credit card issuer to credit your account for the returned amount. The card issuer then posts the credit to your account.

How Long Does a Credit Card Refund Take?

The time it takes to process a credit card refund depends on a number of factors. In general, though, you shouldn't expect to get your money back right away.

The retailer's return policy also affects how long you'll wait for your credit card refund. Many retailers promise refund times of three to five business days, while others take longer. The best way to get an idea of how long you'll wait is to check the retailer's website.

Online returns mailed back to a retailer generally take the longest to process. Depending on the shipping method and distance, it can take a week or more for the package to arrive and be processed before the refund process is set in motion. If you're in a rush to get a refund for an online purchase, paying for expedited shipping to speed its progress might be worth the cost. Some online retailers insist you get authorization from them before sending back a return, so be sure to check the merchant's policy before you put your package in the mail—otherwise, your refund could take even longer.

Itching to speed up the refund process? Returning your item in person will get you your refund faster, because the retailer will issue your refund immediately (although you'll still have to wait for the credit to appear on your credit card statement).

Depending on your credit card's billing cycle, it can take even longer for a refund to appear on your monthly statement. For example, suppose your credit card's closing date is the 15th of the month, and you return an item on the 16th for a refund. Because the return occurred after the closing date, the refund won't appear on that month's statement. Your statement balance often differs from your current balance, so if you're eager to see whether a credit has been issued, check your account online or use the card issuer's mobile app to keep tabs on it.

What if you don't want to wait for your credit card company to issue a refund? You can ask for your refund in the form of store credit, which can be issued immediately. Just be aware that store credit won't erase the purchase amount from your credit card. You'll still owe the credit card issuer the money for the item, even though you returned it.

How Does a Refund Affect Your Credit?

Money refunded to your credit card account is considered an account credit; it doesn't count as a payment or partial payment. If you incorrectly assume getting an account credit eliminates the need to make a monthly payment, you could end up paying late fees or even damage your credit score. Be sure to keep making payments on your balance while you're waiting for the statement credit to post.

If you make a credit card purchase, don't pay the balance off when your statement arrives, and later return the item, you'll be responsible for any interest that accrues on the purchase amount before your refund posts. If you buy an expensive item and carry a balance, this interest can be costly. Unfortunately, your refund won't reimburse you for any interest you may have paid before returning the purchase.

In certain situations, credit card returns can affect your credit score. An account credit can boost your credit score if it reduces your credit utilization ratio, which compares the total amount of revolving credit you're using to the total amount you have available. Credit scoring models consider your credit utilization ratio when calculating your credit score; reducing this ratio to 30% or less can help you avoid hurting your score.

However, a credit card refund that takes a long time to show up on your account could hurt your credit score if the purchase amount pushes your credit utilization ratio above 30%. Suppose you have a credit card with a $6,000 limit and you use it to make a $3,000 purchase that you later return. Until the $3,000 credit posts to your account, you'll be using 50% of your available credit on that card.

Are you within a few points of earning a big reward on your credit card, such as a cash back bonus? Be aware that any credit card rewards points, cash back or other perks you earned on the returned purchases will disappear when the return is processed. There's one way around this if you really want to keep your hard-earned points: Ask for a store credit instead of a credit card refund. The credit card company won't be involved in the return transaction, so your earned points will be safe.

What Happens if I Have a Negative Balance After a Refund?

It's possible to have a negative balance on your credit card after you've received a refund—but despite the terminology, there's nothing negative about this. Having a negative balance just means you don't owe the card issuer any money, and that's always a good thing. Next time you make a purchase using the card, the negative balance will be applied to your purchase.

In itself, having a negative account balance will not affect your credit score. Because it doesn't affect your payment history, a negative balance is not reported to the major credit bureaus and doesn't show up on your credit report. However, a negative account balance might affect your credit score in a positive way if it helps reduce your credit utilization ratio.

What if you have a really big negative balance? For example, suppose you normally spend $50 a month on a credit card, but one day you use it to buy a $2,000 sofa that you decide to return. Using up the $2,000 credit from the return could take a long time if you don't normally spend much on that card. If you'd rather have the cash in hand, you can ask the credit card company to issue a refund via check, direct deposit or money order. Under federal law, the credit card issuer is required to honor this request; however, some companies will ask you to make the request in writing.

Waiting Game

Using credit cards for purchases can offer several advantages compared with cash, such as purchase protection and the ability to dispute charges. However, it may take longer to get your money back via a credit card refund than it would with a cash transaction. In the meantime, you might still owe money on the credit card balance while you wait for the refund to be processed. Knowing how credit card refunds work and what to expect will help ensure that you stay on top of your payments, which helps maintain good credit.

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