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What Happens To My Credit Card Bill When I Make A Return? How Credit Card Refunds Work

TLDR

What You Need To Know

  • A refund for a returned item will not usually post to your credit card account instantly. It generally takes several business days, and maybe up to a week
  • You can’t skip making a minimum payment if there is any amount due to the card issuer, even if you expect to get a refund
  • Credit card issuers have policies to deduct previously earned reward points or cash back credit from your account in the event that a refund is issued

Contents

Are you suffering from buyer’s remorse because of some recent purchases you’ve made? Do you want to know how to cure it? Drive back to the mall and return some things.

As long as you’ve complied with the retailer’s return policy, when you return the item the retailer will generally issue a refund equal to the cost of the original purchase, whether you paid with cash or credit.

Here’s the quick version of what happens with your credit card when you make a return:

  1. The retailer issues a refund to your credit card account
  2. A credit for the refunded purchase will appear in your credit card transactions, usually up to one week later
  3. Cash back or points earned on the purchase are reversed

Keep reading to learn more about the credit card refund process.

How Long Does a Credit Card Refund Take?

A refund for a returned item will not usually post to your credit card account instantly. It generally takes several business days, and maybe up to a week, before a refunded purchase will appear on your credit card ledger and affect your card balance. 

Generally, when a refund is processed for a returned item within the same credit card billing cycle, you won’t be held responsible to make a payment on that specific charge.

If you were to return a purchase near or after the end of your billing cycle, the refund for the transaction might not show on your account before your next credit card payment is due. 

Regardless of the timing of the purchase and the return, if you fail to make at least the minimum payment on your account prior to the due date then you could be penalized by your credit card company in the form of a late fee. 

You can’t skip making a minimum payment if there is any amount due to the card issuer, even if you expect to get a refund.

What If My Account Has a Zero Balance When I Make a Credit Card Return?

If your credit card has a zero balance when the return is processed, a credit is generally added to the account that can be applied to future purchases. If your card remains inactive with a negative balance for several months, the credit card issuer will likely send you a check for the credited funds. You can also call your credit card company to request that a check for the account credit be mailed to you, thus eliminating the wait.

If there is a balance on your credit card when a refund for a purchase from a previous billing cycle is issued, then the credit will simply be applied to your account, reducing your existing credit card balance.

If you made a purchase then carried a balance into another statement period you may be charged interest. When you make a return, that interest will not be refunded.

Consumers don’t always return items immediately or even within the same billing cycle. Sometimes it’s not even close. Months may pass between the date of the original purchase and the return of an item. You’ll still see the returned funds in your credit card account, but you’ll be on the hook for any interest that was charged in the meantime.

Are Rewards, Cash Back, and Signup Bonuses Returned Too?

It’s worth noting that when a purchase is returned and a refund is credited to your credit card account, any reward points or cash back you may have earned on the original purchase will be lost as well.

Credit card issuers have policies to deduct previously earned reward points or cash back credit from your account in the event that a refund is issued. Otherwise, if the policy were different, there would undoubtedly be a large number of consumers attempting to game the system by piling up reward points for large purchases, only to return the purchases at a future date and keep the rewards. This will not work.

Signup bonuses, commonly found on rewards and travel credit cards, generally follow this same rule. If you received a signup bonus based on purchases that you later return, you’ll likely also lose the signup bonus. Read the card agreement of your card to determine exactly how rewards will be handled with returns.

What if you make a purchase, earn some rewards, redeem those rewards, and then return the purchase? In that case you’ll likely wind up with a negative rewards balance. You’ll have to earn more rewards, getting back to zero, before you’ll end up with a positive rewards balance again.

Negative Balances on Credit Cards

In some situations, you may receive a refund on your credit card after you’ve already paid your bill. If you don’t owe any money to your card issuer at the time your refund is processed or if your refund amount is larger than your outstanding account balance, you could end up with a credit on your account. This type of credit may also be called an overpayment, a credit balance, or a negative balance.

A negative balance on a credit card isn’t a bad thing. It simply means that instead of you owing your card issuer money, your credit card company owes you.

When you have a negative balance on your credit card, it works almost like a gift card. Future purchases are deducted from the credit on your account. Once you spend the full credit amount, future charges are billed as usual.

In the event that you don’t use your credit card for several months, the issuer might automatically cut you a check for the outstanding credit on your account. But overpayment policies can vary between credit card companies. So, if you have questions about how your card issuer treats negative balances, you should check your credit card agreement or give the customer service number on the back of your card a call.

Requesting a refund check

Of course, you might not always want to spend the funds that were refunded to your account, at least not right away. If you prefer to have access to those funds in cash and you don’t want to wait on your card issuer to proactively send you a check, you can speed up the process by contacting the card issuer yourself.

Federal law (Regulation Z of The Truth in Lending Act) requires credit card companies to send you a refund within seven business days when there’s a credit balance on your account. The catch is that you have to request the refund, and you must make your request in writing. 

Now, some card issuers may honor refund requests via phone in the interest of customer service (even though federal law doesn’t make them do so). You can call customer service to see if this option is available to you, based on card issuer policy. If the card issuer requires you to mail your refund request, ask the customer service agent which address you should use. Then send it via certified mail with a return receipt requested for your records.

There’s one more point about Regulation Z requirements for negative balances that’s worth mentioning. After six months, card issuers must try to send you any remaining credit balance that’s still on your account. If the card issuer can’t reach you, it must try to trace you using your last known address or telephone number.

Negative balances and your credit scores

A negative credit card balance will not hurt your credit scores. That being said, it won’t really help your credit scores either — at least not any more than a $0 balance on a credit card might help them.

Regardless of how much your card issuer owes you, your credit card will show a $0 balance on your credit reports when you have a negative balance. For example, you’ll never see a -$500 balance (or any other negative number) on a credit report. As a result, your credit utilization rate on the account will remain at 0% as well.

Returns for Transactions in a Foreign Currency

If you bought something in a foreign currency, and then you return it, what happens?

This is another area that can be complicated, and depends on your card agreement, since it can vary from one card or issuer to another.

Many credit cards charge a foreign transaction fee, and it’s possible you won’t get that fee back when you make a return. If you’re in this situation where a foreign transaction fee is not refunded, you may be able to call your credit card issuer and ask for a refund.

If a significant amount of time has passed since you made the purchase, the foreign currency may have gone up or down in value. Credit card companies usually use the current market value of the currency to determine how much is refunded when you make a return. That means you may lose or make money if the foreign currency has gone down or up in value since the original purchase.

Additionally, like many commodity markets, there is a spread for buying and selling currencies. That means it costs slightly more to buy a unit of currency than you would get for selling it at a given point in time. So, even if you make the purchase then immediately return it and your card doesn’t charge a foreign transaction fee, you may lose money.

Where Does The Money Actually Go?

When you buy something with a credit card, the retailer is actually starting the process of being paid by the credit card issuer, not by the consumer who is making the purchase. Normally, once the transaction is approved your amount of available credit is reduced, and you’ll be billed by the credit card company later.

At this point, whether you actually ever pay off your balance isn’t the retailer’s problem because they’ve already been paid. In the event that an item purchased with a credit card is returned, the retailer will issue a refund to your credit card account instead of issuing funds directly to you.

Remember, the merchant is actually paid by the credit card issuer during a credit card transaction and not by the consumer. This is why a consumer can’t receive a cash refund for a purchase that was originally made with a credit card.

ICYMI

In Case You Missed It

  1. If your refund amount is larger than your outstanding account balance, you could end up with a credit on your account

  2. Many credit cards charge a foreign transaction fee, and it’s possible you won’t get that fee back when you make a return

  3. When you have a negative balance on your card, future purchases are deducted from the credit. Or you can request to receive a check for the credit amount

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