When it comes to major purchases, consider paying by debit or credit card for the simple reason that both forms of payment offer you better protection than cash.

One of the biggest protections that debit and credit cards give consumers is the ability to do a chargeback for improper charges or fraudulent purchases. A chargeback effectively reverses a transaction from your statement or bank account. For obvious reasons, the same protections are not given to purchases by money order or cash. 

When should you ask for a chargeback?

There are four scenarios in which you should be able to file for a chargeback and have a charge reversed from your account without much hassle. Here are the four most common reasons that purchases are charged back:

1. You did not receive an item or service you paid for.

This is common, particularly when it comes to online orders. If you were charged for a purchase, but did not receive the product or service, you'll have a strong case to have the purchase removed from your statement by working with the merchant or filing for a chargeback if the merchant is unwilling to help.

2. The product or service you ordered did not match the description or advertisement.

Errors happen. It's not uncommon to receive a product or service that differs materially from what was advertised. For example, you might purchase an iPhone 7 online, but receive an earlier model instead. If the merchant won't correct the error, a chargeback may be in order.

3. You were incorrectly charged for a product or service.

Suppose you cancel your Blue Apron service, but ultimately get charged for the next month, even though it was seemingly clear that your service was canceled and that you wouldn't be charged again. In another case, you might purchase a tank of gasoline for $30, but later find that two charges of $30 appear in your account. Both cases would be reason to talk to the merchant to have the payment reversed, and if they aren't willing to work with you to solve the problem, you should consider filing for a chargeback.

4. You were charged for a purchase you do not recognize or did not authorize.

Credit card fraud is a billion-dollar problem. If you see a charge that you do not recognize or a purchase you did not authorize, call your credit card company immediately. In this case, it's important that the card company not only reverse the charges, but that they cancel your card so that no further purchases may be made with it. The most exclusive premier credit card issuers frequently expedite the mailing of a new card by overnight or next-day mail automatically and for free, though most will do it by request.

Photo of a credit card

Credit card chargebacks can protect you from bad billing practices and shady merchants. Image source: Getty Images.

How the chargeback process works

The first step toward reversing a charge on your account should start with contacting the merchant. In many cases, erroneous charges are simply errors, not fraud or dubious behavior. Legitimate companies have every reason to fix your problem without involving the credit card network or banking institution. Merchants who experience a high number of chargebacks can lose their merchant accounts, or have to pay higher fees to process their customers' credit card purchases. 

I personally recommend recording any telephone conversations you have with the merchant (if legal in your state), or communicating solely by electronic messages or mail. This will establish a record that you can turn over to the card company if the merchant decides not to reverse the charge on their own accord.

If the merchant is unwilling to help, it's time to file for a chargeback to have your payment reversed. 

Filing for a chargeback

Generally speaking, you have 60 days to file for a chargeback after receiving a statement that shows the erroneous charge, although some purchases can be charged back up to 540 days after the statement period. The amount of time varies by the type of transaction and the network (Visa, Mastercard, Discover, or American Express, for example) on which the purchase was made.

Ideally, all credit card chargebacks should be made within 60 days of when you received the statement with the charge in question, so that you have the full protection of the Fair Credit Billing Act. Ask for a chargeback only by electronic message (through a bank's online support platform) or by mail. A request by telephone does not trigger the full protection of the Fair Credit Billing Act. Put your chargeback request in writing.

After you have filed for a chargeback with the card company, you may be asked for any relevant information you can provide to support your claim that the charge should be reversed. Receipts, contracts, advertisements of the product you purchased, and other information will help build up your case.

Here are some important pieces of information that can serve as valuable evidence for your claim:

  • Records of discussions you had with the merchant to reverse the charges prior to filing for a chargeback. (If nothing else, you can prove you spoke to customer support via telephone with phone records from your phone company).
  • Photos of the items or services you received. (Serial numbers or UPC codes can also be useful for showing a discrepancy between what was advertised and the product that was delivered.)
  • Copies of advertisements or contracts that describe the goods or services you purchased.
  • Itemized receipts of the item or services you purchased.
  • Contracts that describe the goods sold or services performed.

Admittedly, this list is long and exhaustive, but the point is that if you have a good case for a chargeback, having more documentation can help your claim. Remember, the bank's representatives did not witness the transaction, thus they have to rely on information submitted by the cardholder and merchant to make their decision. 

Note that chargebacks may temporarily or completely remove any cash-back or travel rewards you earn on your credit card for the purchase in question. It may also affect any new cardholder bonuses that you earned for meeting a minimum level of spending.

The chargeback timeline

Once the chargeback is filed, the bank will take as long as 30 days to investigate your claim. Within 90 days, the bank or card issuer must either make corrections to your bill by reversing the charge partially or in full or send you a letter that explains why it does not believe that a charge should be reversed.

If your chargeback is not approved, you can request copies of documentation from the bank that supports their decision. From there, you'll have the opportunity to provide additional information in support of your claim. You may also decide to pursue the problem via other avenues, perhaps even going so far as small-claims court to solve a contract dispute.

Under the law, chargebacks can take several months to be completed. Practically speaking, charges are typically reversed almost immediately and reappear only if the card issuer determines that the charge should not have been reversed. This is one of the reasons why credit cards are excellent financial tools. You won't have to worry about parting with your cash for months while the bank makes a decision on a purchase that is in dispute.

Though the process can be lengthy and time-consuming, chargebacks are the single best reason to make all major purchases by card rather than cash. It's a valuable protection that most people forget about until they really need it.