
Credit card refunds can be a relief when you've made a purchase that didn't quite meet your expectations or encountered an issue with a product or service. But have you ever wondered how the refund process works or whether it affects your credit score?
In this article, we'll dive into the world of credit card refunds, explaining the process, whether impact on your credit score, and how to avoid the need for refunds in the first place.
What is a credit score?
A credit score is a three-digit number that reflects a person's overall creditworthiness. Credit scores range from 300 to 900, with the average credit score in Canada is around 680. The higher your credit score, the more reliable you appear to lenders, allowing you to access lower interest rates, get approved for different loans, and more.
So, how is your credit score calculated? Several factors go into calculating your score, including:
Credit Utilization Ratio
Your credit utilization ratio represents the amount of credit debt you have, compared to your overall credit limit. A high credit utilization indicates to credit bureaus that you're relying on borrowed money more than you should be. Generally, you'll want to keep your ratio around 30%.
Payment History
Making timely payments on your credit card and other debts forms your payment history. Ultimately, recurring, on-time payments each month help boost your score, while late or missed payments can have a negative impact on your score.
Length of Your Credit History
Your credit history indicates how new or old your credit accounts are. The longer your credit history, the more of a positive effect your credit score will have.
Your Credit Mix
Your credit mix refers to the different types of debts you have. Whether it be several credit cards, personal loans, lines of credit, or a mortgage, the more diverse your credit mix is, the more of a positive effect it will have on your overall history and score.
Credit Inquiries
Credit inquiries occur when you're applying for new credit. Essentially, a lender pulls your credit history to view it and determine whether to qualify you for a new card or loan. Each inquiry temporarily lowers your score.
Unsure what your credit score is? Get a free credit score check and build your credit with KOHO by applying for our virtual credit card with overdraft protection coverage today!
What is a credit card refund?
A credit card refund is a reimbursement issued to a consumer's credit card account for returned merchandise they made with the card. This can occur when a consumer returns a product or cancels a service, and the merchant agrees to refund the transaction.
How do credit card refunds work?
When a purchase is made using a credit card, the transaction is processed through the merchant's payment system, and the funds are transferred to the merchant's bank account. If a refund is requested and approved, the merchant will process the refund through their payment system, and the funds will be returned to the credit card issuer. The credit card issuer will then apply the refund to the consumer's account, reducing the outstanding balance.
What steps do I need to take to get a refund from my credit card company?
Whether you've made an online purchase or one in person, getting money refunded from your card issuer is relatively easy. Here are the steps you need to take to get a credit card refund from your credit card company:
1. Review your refund policy
Credit card refunds work differently between companies. So, make sure to review your refund policy beforehand to ensure you can put the money back into your credit card balance. Another option may be to get a store credit.
2. Gather required documents
Once you've confirmed that you can get a refund, make sure you have a copy of the receipt and your credit card.
3. Request a refund online or in-store
Depending on the credit card purchase, you can either request a refund online or in person at the store you bought the items from.
4. Check your statement balance on your credit card account
Once the refund has been processed, we recommend keeping an eye out on your upcoming credit card bill to ensure the credit card issuer has, in fact, put the money back onto your card.
5. Contact your credit card issuer (if needed)
In the event you notice any discrepancies from your returned credit card purchase, such as the incorrect amount being deposited back into your balance, we suggest reaching out to your issuer directly for assistance.
How long does a refund from your credit card company take?
So, what does a refund timeline look like? The time it takes to receive a credit card refund can vary depending on the merchant and the credit card issuer.
How long will it take before I see a refund on my account?
Now, you're probably wondering, "When will I see a refund on my account?" Generally, it can take anywhere from a few days to several weeks for the refund to be processed and appear on your credit card statement. Some factors that can affect the processing time include the merchant's refund policy and the credit card issuer's procedures.
Do refunds affect credit score?
Credit card refunds do not directly impact your credit score. However, a refund can affect your credit utilization ratio, which is the percentage of your available credit that you are using. A lower credit utilization ratio is generally better for your credit score. If a refund reduces your credit card balance and therefore lowers your credit utilization ratio, it could have a positive impact on your credit score.
Can credit card refunds affect my points or rewards?
Yes, credit card refunds can affect your points or rewards. When you receive a refund, any points or rewards earned from the original purchase may be deducted from your rewards balance. This is because the credit card issuer typically awards points or rewards based on your net spending, so when a purchase is refunded, it reduces your net spending and can result in a corresponding reduction in rewards.
Understanding the credit card refund process and its potential impact on your credit score and rewards can help you make more informed financial decisions. To avoid the need for refunds, it's essential to read the terms and conditions of purchases, research products or services beforehand, and be mindful of your spending habits. By being proactive and knowledgeable about your credit card transactions, you can better manage your finances and maintain a healthy credit score.
What happens when a credit card refund is processed to a cancelled card?
So, what happens when a refund is processed to a cancelled card? Yes, it can as long as the refund process was initiated before you cancelled the credit card. Depending on your financial institution, credit card refunds can take between 5 to 7 business days. So, keep an eye out for your account to confirm the change was made.
What is a credit memo?
A credit memo, also known as a credit memorandum, is a note that means a customer's account has been credited for a certain credit balance following overpayments, returns, refunds, discounts, or other types of adjustments that have been made. Ultimately, credit memos are frequently used to remedy billing problems, recognize returns, or add incentives following a previous transaction.
Credit memos are intended to help individuals manage their finances by ensuring money has been deposited back onto your account balance. In other words, it can help you stay on track with your plans for spending and saving by being transparent about your available funds so you can manage your debts and make more informed financial decisions.
What is a pre-authorized charge on my credit card account?
A pre-authorization charge on your credit card represents a recurring charge you have authorized on your credit account. For example, if you use your credit card to pay certain bills, you may have pre-authorized a charge on your credit card each month, so you do not have to manually pay your bill each period.
When a pre-authorization charge is requested, your credit card or bank account will withhold the requested amount in your bank account to ensure that the merchant is paid.
What does a negative balance on my credit card mean?
If you've recently logged onto your online banking app recently and noticed a negative balance on your credit card, you may have some questions about what this means. There are a couple of reasons why you may be seeing this on your account, including the following:
You overpaid
There's a chance you may have overpaid on your last statement. Because of this, the negative balance indicates a credit you can use to purchase something on your card that you've technically already paid for. Once you purchase something, the balance will be pushed back to zero.
Credit card refund or return
If you returned products or obtained a refund for a purchase charged to your card, the amount of the refund would be credited back to your credit card, possibly resulting in a negative balance.
Rewards earned
Some credit cards offer rewards each time you make a purchase. So, it's possible that the rewards you earned have been deposited into your card.
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If I make a return, will I lose my credit card rewards?
Generally speaking, yes, you will lose your rewards if you request a refund from a merchant. However, this may vary depending on the card company and the terms and conditions of your credit card.
Do credit card returns go toward your minimum payment?
Unfortunately, no. Refunds are considered statement credit, meaning you'll still need to pay your monthly bill. Failing to make your minimum payment can affect your credit score, so ensure you make timely payments each month to keep your account and score in good standing.
What should I do if a merchant refuses to process a credit card refund?
In the event a merchant refuses to process your refund for an in-person or online purchase that was made with your credit card, you will need to dispute the charges with your credit card company directly. The period of time you have to dispute any charges will vary between companies. You can dispute charges for identity theft, lost packages, and merchant refund refusals.
But keep in mind that just because you dispute a charge on your card doesn't mean that your request will be accepted. Additionally, credit card companies typically have at least 30 days or longer to conduct an investigation into the charges. So, if you don't hear back right away, stay patient as they conduct their investigation.
The Bottom Line
While credit card refunds can impact your overall credit score in terms of your utilization ratio, when compared to the other factors that go into calculating your score, the impact won't necessarily make a huge impact. If you're waiting for a refund, remember the process can take a couple of business days, so check your account daily for any changes.
At KOHO, we help Canadians streamline their finances with thoughtful financial products like our high-interest savings account. Whether you want to build your credit, get a cash advance, save for the future, or get insurance coverage, KOHO's got your back every step of the way.
Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up-to-date account information!

About the author
Niki is a communications specialist with years of experience as a freelance and marketing agency content writer. With a knack for storytelling, Niki enjoys working with businesses from diverse industries to craft engaging content that resonates with target audiences worldwide.
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