Store Credit is useful in Magento because it allows customers to add funds to their account for the purchase of products. Other uses of store credit are enabling a gift card to be converted into store credit so the customer only has to enter the gift card code one time. A final use of store credit is that it can be issued for returned products.
To start with, go to System-> Configuration -> Customer Configuration tab. Select the Store Credit Options tab.
First set Enable Store Credit Functionality to "Yes". Next, you can choose to either enable the store history for customers or disable it by setting Show Store Credit History to Customers to "Yes". The remaining two options are email settings for store credits.
Note: Refund Store Credit Automatically deals with the store credit automatically being generated when an order is canceled. This is an optional setting.
To manage store credit go to Customers -> Manage Customers. View a customer and select the Store Credit tab.
As you can see, you can change the amount of credits that a customer has. Just update their balance, and then save the customer. You can choose to enable or disable the Notify Customer by Email option.
Note: you can update the balance by adding or taking away funds. Continually, when creating a credit memo, you are also able to refund the amount in store credit.
Two important points: the first, during checkout a "Use Store Credit" check box will appear above the payments field with the customers balance. If the balance is greater, the payment methods will disappear. Orders paid with store credit cannot be refunded, and credit memos will not be available. To refund it, you will have to cancel it and manually readd the balance.
2nd Store Credit in My Account: Under My Account -> Store Credit customers can view their credits and, depending on their settings, their credit history.