Let’s say you used a credit card to buy framed wall art from Urban Outfitters, and it turns out to be a little too store-bought for your spouse’s taste (this may or may not be a true story). What happens to your card’s rewards points if you ask for a refund? Are store credits a better option?
How refunds affect your credit card rewards
Most stores have fairly generous return policies that include the option of a store credit or full refund. If you paid for the item with a rewards credit card, then the rewards earned with your purchase—points, miles, or cash back—will be clawed back by your credit card company after you request a refund.
Unfortunately, this can take an entire billing cycle before you actually see it (the refund for the item itself will take about five to seven days to be processed), and is therefore easy to overlook. (If you’ve already redeemed your reward points, you’ll see a negative points balance based on that transaction in your card’s online rewards portal).
Credit card refunds mess up you bonus rewards
The clawback on rewards also includes any limited-time bonus rewards you may have earned from your spending. As an example, if you have a Bank of America cash back card, the $200 welcome bonus for spending $1000 in 90 days could be nullified if your refund also falls within that time period. Of course, if you’ve already redeemed the $200 cash bonus, this can be a nasty surprise if you aren’t carefully tracking your rewards.
It also applies to limited offers for spending categories, too—if you took advantage of a limited-time 5% cash back bonus on a given category, that’s what you pay back, too, even if the bonus category has subsequently changed.
That isn’t to say that you shouldn’t get a refund if the purchase was a mistake, but you’ll want to make sure your reward redemptions aren’t affected before returning an item to the store.
Store credits might be a better option
When you make a purchase with your credit card, the merchant is technically paid by your credit card company. A store credit, however, is an arrangement between you and the retailer—you can skip the credit card company altogether and simply keep the reward points you’d normally lose through a refund. This is the only way in which you can preserve your rewards points for refunded purchases paid with your credit card.
The downside is that you’re committing to an exchange or credit, which is limited to just one retail chain or outlet. On the other hand, that might work for you. As an example, in our made-up, totally hypothetical scenario, a tasteless piece of wall art from Urban Outfitters could be exchanged for something that you would have already bought eventually, like clothes—all while keeping your reward points (and possible bonuses) intact.