Does Returning Items Affect Credit?

How Do Credit Card Refunds Work?

When you return an item for a credit card refund, the merchant sends a request to your card company asking them to credit your account. The merchant doesn't refund the money directly to you because, in a credit card transaction, the seller receives payment from your card company. Your card issuer pays the merchant and adds the purchase to your credit card balance. When you return items for a refund, the card company reverses the transaction and credits your account.

You'll see the refund reflected in your credit card balance when the return is complete. This typically takes a few days to a few weeks of processing time.

Learn more: How Do Credit Card Refunds Work?

What's a Negative Balance?

If you get a refund that's larger than your credit card balance, your account may show a negative balance when the refund posts. In this case, a negative balance is actually a plus: It means you have a credit on your account. What can you do with a negative balance?

• Spend it. Your card issuer will use the credit to cover your charges until it's used up.
• Request a refund. Ask your card company to issue a paper check or transfer the extra funds to your bank account.

When Returning Items Can Affect Your Credit

Returning items can affect your credit if you receive a large refund to your credit card. Money refunded as store credit, cash or onto debit cards generally doesn't have an impact on credit. Refunds and other transactions aren't reported to consumer credit reporting agencies and aren't used in calculating your credit scores.

Credit Utilization Can Affect Your Credit Scores

A credit card refund can affect your credit indirectly by lowering your credit utilization rate, or the total percentage of available credit you're using.

Example: Say you have a credit card with a $5,000 credit limit and you're carrying a balance of $2,000. Your credit utilization is 40% ($2,000 divided by $5,000).

Most experts recommend keeping your credit utilization ratio below 30% to avoid extra damage to your credit scores, and below 10% to maintain the best scores. In our example, returning an item for a $500 refund could reduce your card balance to $1,500, or 30% of your available credit. Since credit utilization accounts for about 30% of your FICO^® Score^Θ, a $500 refund could have a significant impact. Note that a smaller return (say, $20) would be less likely to have a noticeable effect.

Learn more: Credit Score Basics: What Impacts Your Score and Why It Matters

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Refund Delays Can Cause Missed Payments

Credit card refunds can take more than a week to post, depending on a variety of factors. Card issuers don't count a refund as a payment on your account. As long as your account shows a balance, you should still make your monthly payment on your regular due date. If your payment is 30 days late (or more), your credit score may drop and the late payment will stay on your credit report for seven years.

Learn more: How Long Does a Credit Card Refund Take?

Disputes and Chargeoffs Take More Time

If a merchant won't agree to accept a return, you can dispute the charge and ask for a chargeback from your credit card issuer. However, chargebacks can take weeks or months to resolve. While you're waiting, don't forget to make monthly payments on the balance.

Tip: No matter how large of a return credit you're waiting on, it's important to make at least the minimum payment on your credit card in the meantime. If you don't, you'll likely be charged a late fee, potentially may incur interest and, if your payment is late, it could be recorded as a negative item on your credit report.

Do You Lose Rewards on Returned Purchases?

Rewards points and cash back are forfeited when your credit card is refunded. Anytime a charge is reversed, the points or cash back you earned from the transaction are deducted from your rewards account.

What if You Already Used the Rewards?

If you've already used your points or miles, or redeemed cash back, your rewards account may show a negative balance. As you earn rewards going forward, your account balance will increase, eventually moving back into positive territory.

Can You Keep Rewards After a Return?

If you want to keep your rewards when returning an item, consider asking for store credit instead of having money refunded to your credit card. By doing this, you keep your original card transaction (and the rewards that came with it) intact. This is probably only worth doing if you're certain you'll use the store credit. Otherwise, you run the risk of owing money on your credit card while letting your refund money sit idle as store credit.

The Bottom Line

Many returns don't have much impact on your credit, including cash purchases, small-dollar transactions and items you return for store credit. However, if you return a big purchase for a credit card refund, your account balance could decrease, which may improve your credit utilization rate and potentially your credit score. When the dust settles, check your credit report and FICO^® Score for free with Experian to see where your credit stands.