I’m a little confused about how returning items I’ve purchased, particularly if I used a credit card for the purchase, impacts my credit score. I know late payments and high credit utilization hurt your score, but what about returns?
Specifically, I’m thinking about these scenarios:
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Returning an item immediately after purchase: Say I buy something online with my credit card, and then realize I don’t need it as soon as it arrives and immediately return it for a full refund. Does that impact my credit at all, even if the charge shows up briefly on my statement?
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Returning an item after carrying a balance: What if I bought something on my credit card, let the balance sit for a month or two, paying it down gradually, then decide to return the item? Does the refund being credited to my card in that scenario have any negative or positive effects? What happens if the refund is more than the remaining balance?
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Returning a large item affecting my credit utilization: I recently bought a new appliance on my credit card. It significantly increased my credit utilization. If I return it, will my credit score see a positive bump fairly quickly?
- Returns and store credit: If, instead of a refund to my credit card, I receive store credit for the returned item, does that change anything regarding my credit score impact?
I’m really trying to understand the nuances here. I’ve read conflicting information online and would appreciate a clear explanation. Thanks!
Answer
Returning merchandise to a store generally has no direct impact on your credit score. Credit scores are primarily based on your credit history, which includes how you manage debt and credit accounts. Returns typically don’t involve debt or credit accounts in a way that would be reported to credit bureaus and factored into your credit score.
However, there are a few very specific and unusual scenarios where returns could indirectly influence your credit score, although these are uncommon:
1. Store Credit Cards and Credit Utilization:
- How it Works: If you used a store credit card to make the purchase and charged a significant portion of your available credit, returning the item and receiving a credit to your account could lower your credit utilization ratio. Credit utilization is the amount of credit you’re using compared to your total available credit. It’s a significant factor in your credit score.
- Example: Let’s say you have a store credit card with a $1,000 credit limit. You charge $800 worth of merchandise to it, resulting in an 80% utilization ratio. This high utilization could negatively impact your credit score. If you then return the merchandise and receive an $800 credit to your account, your balance drops to $0, and your utilization ratio becomes 0%. This reduction in utilization could positively impact your credit score.
- Key Takeaway: The impact on your credit score is only relevant if the purchase significantly impacted your credit utilization in the first place. Small purchases and returns are unlikely to have a noticeable effect. If you maintain a low credit utilization ratio regardless of the purchase and return, the return won’t make a difference.
2. Fraudulent Returns/Disputes:
- How it Works: If a return is suspected of being fraudulent (e.g., returning a different or damaged item than what was purchased) and leads to a dispute with the store or credit card company, this could potentially, in very extreme cases, impact your credit score.
- The Process: The store or credit card company might investigate the dispute. If they determine that you engaged in fraudulent activity, they could potentially take actions that could indirectly affect your credit, such as closing your account or reporting the incident to law enforcement. If the credit card company refuses to pay the store and you refuse to pay the credit card company, the debt could potentially be sent to collections, which would negatively affect your credit.
- Why it’s Uncommon: This is a highly unlikely scenario. Stores typically handle return disputes internally and are unlikely to pursue actions that would directly affect your credit report unless the fraud is significant and involves a considerable sum of money.
- Important Note: Disputing a legitimate charge in bad faith can also have negative consequences, as it could be considered a breach of your credit card agreement.
3. Refund Checks and Bounced Checks (Extremely Rare):
- How it Works: If the store issues a refund check and that check bounces due to insufficient funds, it could lead to collection activity if the store pursues the debt. This collection activity would be reported to credit bureaus and negatively affect your credit score.
- Why it’s Rare: Most stores issue refunds directly to the original payment method, avoiding the use of checks. Bounced checks are also relatively uncommon.
4. Afterpay/Klarna and Returns:
- How it Works: If you used a "buy now, pay later" service like Afterpay or Klarna, the return process is slightly different. You’re still responsible for the payments until the return is processed. If you fail to make payments while waiting for the return to be processed, this could negatively affect your credit if the BNPL provider reports late payments to the credit bureaus.
- Important Note: Some BNPL providers do not report to the credit bureaus. Check the terms and conditions of your specific provider to understand their reporting practices.
- Best Practice: Continue making payments to Afterpay or Klarna according to the original payment schedule until the return is fully processed and you receive confirmation that your balance is adjusted.
In summary, the vast majority of returns will not affect your credit score. Concentrate on managing your credit accounts responsibly, paying your bills on time, and keeping your credit utilization low. These are the factors that have a significant and consistent impact on your creditworthiness.
