How Do Refunds Work on a Credit Card?

No matter how savvy of a shopper you are, returns happen. Maybe you bought a defective item, or the guilt of an unnecessary purchase drove you to make a return. Whatever the reason, returning an item for a refund is generally a straightforward process -- as long as you kept that pesky receipt, anyway.

However, when you get a refund on a purchase made with a credit card, there are a few considerations to keep in mind. Due to the way credit card transactions work, you will have to wait several days to see your available credit come back. And if you earned rewards, those will likely disappear.

Before you ask for a refund on your credit card purchase, find out everything you should know ahead of time so there aren't any surprises.

How Does a Credit Card Refund Work?

When you make a purchase using your credit card, you don't actually pay the merchant. Rather, the merchant is paid by your credit card company.

Once the transaction is approved by your card issuer, your available credit goes down. Even though the merchant has been paid, you aren't billed by the credit card company until later. So what if you end up returning the item you purchased for a refund?

Since you didn't pay the retailer directly, it won't refund you directly, either. Rather, the retailer will issue a refund to your credit card account. This is why you usually can't receive a refund in any form but the original payment method. It has to go through the credit card company once again.

[Read: Best Credit Cards with High Credit Limits.]

How Long Does a Credit Card Refund Take?

When you make a purchase on a credit card, the purchase amount that hits your account balance will be reflected as a payment requirement on your monthly statement. "However, if you choose to return the item and request a refund, you will not receive cash for this return but a credit equal to the amount of the original purchase on your account," says Riley Adams, a CPA, senior financial analyst at Google and owner of the blog Young and the Invested.

The length of time it takes to receive that credit to your account can vary widely. Typically, refunds take three to seven business days to reflect back on your account once they have been issued.

But some circumstances can affect how long a refund takes. The timetable can be much shorter -- or much longer. "Ultimately, the time it takes to refund a transaction is dependent on the credit card company and its policies," says Jim Pendergast, senior vice president at altLINE, a division of The Southern Bank. Additionally, you could wait much longer on a refund if you mail the item rather than make the return at the store, in part because you have to account for shipping time. That's especially true if you're returning an international purchase.

Fortunately, some credit cards offer return protection. With this protection, your card company will still issue a credit to your statement for the purchase amount as long as you meet the requirements, even if you're unable to return an item directly to the merchant because you don't meet the merchant's return rules.

If you're not just returning an item, but also disputing a charge, it can take up to 150 days for a return to appear on your account. If you take this route, you must notify your card issuer of a problem with your purchase within 60 days of the transaction; the issuer then has 90 days to resolve the issue.

What Happens to the Rewards?

Rewards points and other perks earned on purchases that get returned disappear once that return happens.

"When making this purchase on a rewards card, you received some sort of benefit, be it points in a loyalty rewards program, cash back credits or some other compensation arrangement incentivizing you to make purchases with this card," Adams says. "However, much like the retailer returning the money received for the purchase, the cardholder too must return any associated rewards points."

That's true of all types of rewards, including sign-up bonuses and other incentives based on spending.

For example, say you needed to spend $3,000 within the first three months of account opening to earn a sign-up bonus. At the end of the third month, you bought a new refrigerator for $800. That brought your total spending just past the $3,000 mark, and you received your bonus soon after. However, a couple of weeks later, you decided that you didn't like the fridge and ended up returning it. Since the $800 was ultimately refunded, you technically didn't spend the full $3,000 and would lose your bonus.

[Read: Best 0% APR Credit Cards.]

Do Credit Card Refunds Count as a Payment?

According to Pendergast, a credit card refund to your account is considered an account credit, not a payment. That means you'll still need to make the minimum payment due in order to avoid missing a payment.

Adams adds that if you make a purchase but opt to return the item after your current billing period ends, and you end up accruing interest or other related fees on the account in the meantime, the credit would not offset these charges. "In effect, the returned purchase credit will be put on your bill, but the associated interest and fees (if applicable) will remain because of your use of the credit line," he says.

This is also true if you returned a purchase near the end of your billing cycle, in which case the refunded amount might not show up on your balance before the next payment is due. In this case, you should make at least the minimum payment to avoid a late fee.

However, if you're already carrying a balance on your credit card when the refund posts, the good news is it will credit the account and reduce the total amount you owe for the next billing cycle.

If you had a $0 balance, the credit will still be applied to your account and will show up as a negative balance. For example, if your balance was $0 and you received a refund of $50, your balance would appear as -$50. That credit is then applied to future purchases. Say you next made a purchase for $70. Your balance would then go from -$50 to a positive $20.

In some cases, you might be able to receive a refund from your card issuer rather than an account credit. That's especially true if you need the money immediately to cover other bills, or it's a card you don't use often and end up with a negative balance for several months. In this case, you can call your issuer and ask to have a check mailed for the difference.

How Does a Credit Card Return Affect Your Credit?

Since credit card activity plays a role in the health of your credit, you might be wondering how credit card returns can impact your score.

A credit card refund is generally good news for your credit score, since it helps lower your total outstanding balance. "Amounts owed" -- also known as your credit utilization ratio -- accounts for 30% of your credit score.

"Credit agencies are interested in how much credit you use every month on your credit card," Pendergast says. "They typically look for people to spend less than 30% of their credit limit."

For example, if your credit limit is $1,000 and you are carrying a balance of $300, your credit utilization would be 30%. If you're above that threshold, a refund could put you below it and help improve your score. The key is for the return to process before your balance is reported to the credit bureaus. Otherwise, your card will reflect the higher balance even though a return is on its way.

You Could Be Stuck With Foreign Transaction Fees

When it comes to international purchases, you could be stuck with any foreign transaction fee that's charged. That's because when you make a foreign purchase, it costs your credit card company money.

Though terms vary depending on the issuer, "you should assume the foreign transaction fees will not be refunded because the card issuer needed to make currency market purchases to process your card purchase and incurred a cost to service your needs," Adams says.

Even so, it doesn't hurt to ask. In some cases, your card issuer might be willing to refund the fee, especially if the return was made right away and currency values didn't change much in the meantime.

[Read: Best Credit Cards for Excellent Credit.]

Can You Get Your Refund a Different Way?

If you'd rather have cash in your pocket right away or get the credit on a different card, you might be wondering if you can have a credit card refund returned to you in another manner. Unfortunately, because of the way credit card transactions work, it's unlikely that the merchant will refund you in any way other than the original payment method.

Often, the merchant can pull up your credit card details using your receipt and issue a refund back to the card. In other cases, you need to have that same credit card on hand in order to process the transaction. If you don't, the merchant might be willing to issue your refund with a gift card or store credit instead, but that's likely not the best option since it limits how you can spend the money.

Even though credit card refunds can take longer than if you paid cash or by debit card, it's generally a good idea to pay for big-ticket items with a credit card. Not only can you earn more points back if you use a rewards credit card for major purchases, but the fraud protection on credit cards is better, too.

[Read: Best Rewards Credit Cards.]

Plus, many credit cards offer added benefits such as price protection, purchase protection or extended warranties. Of course, if you make a return, you forfeit all of these benefits on the particular transaction. But hopefully returns are few and far between so you can enjoy the perks your credit card has to offer.

Casey Bond is a seasoned personal finance writer and editor. Her work has appeared in a number of major national publications including U.S. News & World Report, Yahoo Finance, MSN, The Huffington Post, Business Insider, Forbes and others. Follow her on Twitter @CaseyLynnBond.