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A chargeback is a payment that's returned to your credit card after you successfully dispute a transaction or return a purchased item. A chargeback can help you get your money back in numerous situations, such as when a mechanic charges you for work but doesn't fix your car, a restaurant server adds a little something extra to their tip or you place an order online and never receive it. You could also pursue a chargeback if a new purchase appears on your credit card account that you don't recognize.
A chargeback is a way to get your money back when merchants aren't following through on their promises, or you're charged for something you didn't buy. Understanding how chargebacks work, when to ask for them and how to file a chargeback can safeguard you from paying for fraudulent purchases.
What Is a Chargeback?
A chargeback is a consumer protection tool you can use to dispute a charge and reverse a transaction. Cardholders commonly use chargebacks to correct a billing error or fraudulent purchase. But according to the Fair Credit Billing Act, you can also file a chargeback if you're not satisfied with a product or service and the business or provider refuses to rectify the issue.
A chargeback is initiated when you dispute a charge with your card issuer rather than with a store. It can reverse a transaction that's been posted to your credit card or bank account and can keep you from having to pay for fraudulent purchases—and help you get your money back if you're dealing with an unscrupulous or unhelpful merchant.
How Do Chargebacks Work?
The chargeback process can be a complicated multistep back-and-forth between various organizations that are trying to figure out who should be responsible for paying the transaction. Here's how the process typically works:
- A transaction clears your account. You disagree with the charge because you believe it is fraudulent, there is a billing error or the merchant won't address your complaint about the quality of a product or service. In this case, you have at least 60 days to file a dispute when you suspect a billing error or fraudulent purchase and up to 120 days if you have a complaint about a product or service you receive.
- You file a chargeback dispute with your credit card issuer. You can typically dispute a transaction by contacting your card issuer over the phone, by email or by filling out an online form. You may have to send your card issuer supporting documents when you file a dispute, such as copies of a receipt, invoice, contract and any communications you had with the merchant.
- The chargeback process begins. The card issuer could reverse the charge or determine you're responsible for the payment. Otherwise, the dispute process will move forward. You may receive a temporary credit on your account while the inquiry continues. If the investigation determines you are not responsible for the purchase, the credit will become permanent, and you won't have to worry about the transaction again.
- Multiple parties may contribute to the process. In addition to the merchant and credit card issuer, the investigation could involve other organizations, including:
- The acquiring bank: The financial institution that allows merchants to accept cards, processes card transactions and helps money flow from the cardholder's account to the merchant.
- The card network: Companies like Visa and Mastercard create and oversee credit card payment networks. They also determine the chargeback rules for their respective networks.
- You'll receive a decision. Your card issuer must complete its dispute investigation within two billing cycles, which could take up to 90 days. At its conclusion, you'll either be found responsible for paying the transaction, or the amount will be permanently credited to your account.
Consumers have an 88% success rate with chargebacks, according to Shopify. A chargeback won't always be settled in your favor, though. Merchants do have the right to dispute your claim, and you may still wind up paying for the transaction plus interest.
You also shouldn't dispute a transaction simply because you don't want to pay—that's fraud. The merchant may file a civil case to try and reclaim its losses and a police report, which could lead to criminal charges.
When to Ask for a Chargeback
Chargebacks should be used judiciously and only when appropriate. Here are instances when you might consider using a chargeback:
- If you suspect fraud: Contact your card issuer or bank to dispute the charge if you suspect someone is using your card or account number without your permission. You may want to take additional steps to protect your finances, such as adding fraud alerts to your credit reports or signing up for identity theft protection.
- If you have an issue with a merchant: First, contact the merchant directly if you're having trouble with an order, refund, product or service. If the merchant refuses to help and isn't following its own return policy or quality guarantee, you can then dispute the charge and try to get a chargeback.
However, you shouldn't dispute a charge because you changed your mind, weren't completely satisfied or if the merchant had a clear policy that it doesn't accept returns. A chargeback can help you get your money back after you've been wronged, but in some cases, you may have to live with buyer's remorse instead.
How Do I File a Chargeback?
The dispute and chargeback process can vary depending on your card issuer, network and situation, but it generally goes like this:
- You dispute a transaction by phone, mail or online.
- Your card issuer refunds your money, decides you have to pay or passes the chargeback on to the card network. If the chargeback moves forward, you might get a temporary credit for the disputed amount.
- The card network reviews the transaction and orders the issuer to pay or forwards the dispute to the merchant's acquiring bank.
- The acquiring bank sends the dispute back to the card network and either says the issuer is at fault or forwards it on to the merchant.
- The merchant either agrees to pay for the transaction or disputes the chargeback.
- If the merchant disputes the chargeback, there may be several rounds of back and forth as the merchant, acquiring bank and card issuer try to settle the matter.
- Ultimately, the card network decides who pays.
Once you file a dispute, the credit card company has 30 days to send you a letter acknowledging receipt of your dispute. From there, the process must be resolved within two billing cycles, or up to 90 days, after the issuer receives your letter.
What's the Difference Between a Chargeback and a Refund?
While both a chargeback and a refund can help you reverse a charge, the difference between the two lies in who is issuing the change. With a chargeback, you'll receive credit from your card issuer, while a refund occurs when the merchant gives your money back.
Does Disputing a Charge Hurt Your Credit?
Disputing a charge isn't considered good or bad in terms of your credit scores. However, the account might be marked as in dispute on your credit report, which could impact your ability to qualify for a loan.
Also, while you don't need to pay the amount you're disputing while the chargeback process is underway, you still need to pay the remainder of your bill. Missing a payment can negatively impact your credit.
Additionally, if the dispute doesn't go in your favor, you'll need to pay for the charges if you don't want to be reported late.
Don't Forget to Protect Your Credit
Chargebacks offer a layer of protection against fraudulent transactions and purchases that fail to meet your expectations. Of course, you should attempt to work with the merchant to resolve the issue before filing a chargeback.
It's also wise to protect your credit. Check your credit report and consider signing up for free credit monitoring with Experian. You'll receive customized alerts about new inquiries and accounts, changes in your personal information and other suspicious activity on your Experian credit report.