How Do Credit Card Refunds Work?

How Do Credit Card Refunds Work?

Credit card purchases continue to drive much of the United States economy. Recognized research and data firm Finder states that in Q3 2021, total aggregate credit card debt reached $804 billion. During this timeframe, every American carried an average of two credit cards. This effectively gave them twice the purchasing power.

Infographics How Credit Card Refunds Work 1

With such huge credit card transaction volumes, some purchasers will inevitably decide to return one or more items. As such, multiple factors can make the refund process a bit murky. These credit card refund guidelines will provide small- and medium-sized business owners with some much-needed clarity on an often-complex subject.

Let’s get started.

What are credit card refunds?

A credit card refund occurs when the customer decides to return an item they have previously purchased from a seller. The sale may have originally taken place at a brick-and-mortar retail store or an online store. 

Essentially, the customer decides they want their money back. So, the retailer sends a refund to the customer’s credit card account.

Purchase protection

Major credit card networks provide purchase protection for eligible damaged or stolen items purchased with the company’s card. The purchaser can file a claim to have a covered item repaired, replaced, or reimbursed. Before purchasing an expensive item, the customer should confirm that the item will be covered under the purchase protection provision.

Return protection 

Credit card processors often provide “return protection” that lengthens an item’s “return life.” Sometimes, the manufacturer provides no return protection at all. So, the credit card network (e.g. Mastercard or Visa) steps in and creates that protection.

To submit a claim, the purchaser must send the item to a specified address, usually at their expense. The purchaser must also prepare a claim form for inclusion with the package.

Credit card extended warranties 

Customers who pay with a credit card may qualify for free extended product warranty coverage. This means the customer will receive up to a year of extra warranty coverage for eligible items. 

To qualify, the customer must charge the purchase to the covered card. They must also save the purchase receipt and the warranty paperwork.

Next, let’s say the product malfunctions after the manufacturer’s warranty expires. The card network may reimburse the customer via a statement credit or personal check. Extended warranties don’t apply to cars, computers, and items without manufacturer’s warranties.

How credit card refunds work

To learn how credit card refunds work, check this snapshot of a credit card processing sequence (including the refund). 

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Card refunds work the same regardless of the card type or financial institution that issued the credit card. Therefore, the same credit card returns process applies to all Visa, Mastercard, American Express, and Discover credit cards.

  • First, the customer originates a purchase with their credit card. The merchant’s payment processing company sends the card details to the card-issuing bank (the customer’s bank). 
  • The card-issuing bank quickly approves or denies the transaction. If approved, the customer receives their merchandise, and their available credit decreases.
  • When the customer requests a refund, the merchant must send those funds back to the card-issuing bank. 
  • Then, the card issuer credits the customer’s account for that amount. This process may take several days. It can take several more weeks for the credit to appear on the cardholder’s monthly statement.

How long does a credit card refund take?

The cardholder likely wants to know: how long does a credit card refund take? The refund process can vary depending on the credit card company’s refund policy. 

It usually takes three to seven business days for an issued refund to appear in the cardholder’s credit card account. A debit card refund is often processed more quickly.

If a cardholder returns the item in person, the retailer can issue an immediate refund. However, it will still take time for the credit to appear on the credit card statement.

Infographics How Credit Card Refunds Work 2

How refunds affect processing fees for merchants

Regardless of the industry, merchants would rather avoid refunds at all costs. 

  • A returned item means something went wrong with the customer’s purchase experience. 
  • The merchant is also giving up that incoming revenue, which affects their bank account.
  • To add insult to injury, the merchant (you) will also be hit with an additional credit card processing fee. This refund fee usually equals the amount of the interchange fee. In other words, you won’t be reimbursed for the interchange fee cost when the refund goes through.

Alternatively, a payment processor might reimburse the merchant for the interchange fee. However, the processor may instead assess a fixed credit card refund fee. Either way, the merchant is hit with yet another credit card processing expense.  

A refund vs a chargeback

A credit card refund and a credit card chargeback are two different animals. A credit card refund takes place after the cardholder purchases an item from a retailer. At some point afterward, the customer asks that a full refund be credited to their account. The merchant typically initiates the refund process. 

In contrast, a chargeback completely negates the original credit card charge. The chargeback occurs after the cardholder has initiated a billing dispute with their credit card company. A chargeback usually takes considerably longer to resolve than a typical refund.


Several different factors influence the credit card refund process. View these Frequently Asked Questions for some general guidelines.

Do credit card refunds count as account credit?

Yes, they do. But credit card issuers don’t consider refunds an account payment (or even a partial payment). So, cardholders must continue to pay their minimum payment each month. By always making the payment on time, they will avoid late fees.

Also, let’s say the cardholder purchases several products from Amazon. However, they have buyer’s remorse, causing them to return one item after the end of the current billing cycle. They’ll still accrue interest on the purchase.  

Can customers request a refund check?

The credit card issuer (or card-issuing bank) will typically credit the purchase back to the cardholder’s account. However, the cardholder may prefer a “cash refund” payment method to get the money in their pocket more quickly. Or, if they don’t want to carry a negative balance on a rarely used credit card, they can contact the card issuer and submit a check request for the refund amount.

In some cases, the merchant may be able to issue a refund directly back to the credit card. However, the cardholder will generally need their receipt along with the exact credit card used for the purchase.

Some merchants may gladly issue a store credit or gift card for future purchases. This certainly benefits the retailer, as they don’t have to give up the revenue already received. However, the cardholder is limited on how they can spend their refund.

Do refunds impact a cardholder’s rewards?

Cardholders frequently view rewards credit cards as the best credit cards. Perks include cashback credits, loyalty rewards points, sign-up bonuses, and other spending-based incentives.

Now, let’s assume the cardholder returns an item they purchased with a rewards card. Those associated rewards points (or miles) are deducted from the customer’s points balance. 

Getting a refund on a cash-back credit card has a similar effect. The cardholder’s cashback will be deducted from their rewards balance.

What if a cardholder has zero balance when they make a return?

Many cardholders carry a balance on their credit card accounts. When a refund request is processed, a credit is applied to the account. This reduces the credit card balance accordingly.

For a zero account balance, the applied credit will display as a negative balance. When the customer makes their next purchase, the credit is applied first. Then, the customer pays the remainder of the amount due.

Can refunds result in a negative balance?

Yes, a negative balance can occur if a cardholder pays off the entire amount they owe before their refund is applied. During the cardholder’s next purchase, the negative balance (effectively a credit) will be applied until it’s completely used up. The customer is responsible for paying the rest of the purchase amount due.

Do refunds impact a cardholder’s credit?

A credit card refund generally has a positive effect on a cardholder’s credit score. Because the refund reduces the total outstanding account balance, it also reduces the credit utilization ratio. The credit card company ideally wants a cardholder to use less than 30% of the card’s total credit limit.

Let’s say the cardholder purchases an item but then decides to return it. The return takes a while to work its way through the system. 

In the meantime, the purchase amount has driven the cardholder’s credit utilization ratio above 30%. Therefore, their credit score may be negatively impacted until the refund is completed.

Can cardholders get refunds on international purchases?

Yes, a cardholder can receive a refund on an international purchase. However, the card issuer will probably not refund the foreign transaction fees. These fees resulted from the company’s need to make a currency market purchase to complete the credit card transaction.

If the foreign currency has risen or fallen in value, the cardholder may receive a higher (or lower) refund amount than the original purchase price. The credit card company typically uses the currency’s current market value to determine the refund amount. The cardholder should refer to their card agreement for the issuer’s international return policy.

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By working with a customer-centric payment processing company, your refund process can be relatively painless. Payment Depot is often praised for its excellent small business customer support. 

It also offers small business-friendly membership pricing, no extra fees, and no cancellation penalties. Contact us today to learn how we can help you save more as you process more credit card transactions every month. 

FAQs about Credit Card Refund

Q: What is a credit card refund?

A credit card refund occurs when a customer returns an item they previously purchased from a seller. The retailer sends the refund amount back to the customer’s credit card account, and this process may take several days to reflect on the credit card statement.

Q: How does a credit card refund work?

Once a customer initiates a refund request, the seller must confirm the return and send the refund amount back to the customer’s card-issuing bank. After that, the card issuer credits the returned amount to the customer’s account. This process usually takes three to seven business days, depending on the bank’s policy.

Q: What factors influence the credit card refund process?

Factors such as the credit card company’s refund policy, the method of purchase (online or in-store), and whether a receipt is provided can influence the credit card refund process. Additionally, the type of credit card used (Visa, Mastercard, American Express, or Discover) does not impact the refund process, as the same credit card returns process applies to all.

Q: How does a refund affect the merchant?

A refund can negatively impact a merchant as they lose incoming revenue, which affects their bank balance. Additionally, they may be hit with an extra credit card processing fee, typically equal to the interchange fee. This fee is not reimbursed when the refund goes through, resulting in an additional expense for the merchant.

Q: What is the difference between a credit card refund and a chargeback?

While both involve the return of funds, a refund and a chargeback happen under different circumstances. A refund occurs when a customer requests a seller to return the payment of an item they’ve purchased. On the other hand, a chargeback takes place when a customer initiates a billing dispute with their credit card company, completely negating the original charge. A chargeback generally takes longer to resolve than a refund.

Q: Can a negative balance occur in a credit card account due to a refund?

Yes, a negative balance can occur if a customer pays off their entire credit card amount before a refund is applied. In this case, the negative balance acts as a credit during the customer’s next purchase, reducing the amount due.

Q: Does a credit card refund affect my credit score?

A credit card refund can have a positive effect on your credit score. As the refund reduces the outstanding balance on your account, your credit utilization ratio also decreases. However, if the refund takes time to process and your balance exceeds 30% of your credit limit in the meanwhile, your credit score may be negatively impacted.

Q: Can I still accrue interest on my returned purchases?

Yes, interest can accrue if a purchase is returned after the end of the current billing cycle. You will need to keep making the minimum payment each month to avoid late fees. The credit from the return will be applied to your account but is not considered a payment.

Q: What happens to my reward points or cashback if I obtain a refund?

If you return an item purchased with a rewards credit card, the associated reward points or cashback are usually deducted from your rewards balance. Thus, a refund can impact the rewards you’ve earned on your credit card.

Q: Can I receive a refund on an international purchase?

Yes, refunds can be processed for international purchases. However, note that the card issuer may not refund the foreign transaction fees resulting from the currency exchanges necessary to complete the transaction. Also, if the foreign currency’s value has fluctuated, you may receive a higher or lower refund than the original purchase value.

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