Does a Chargeback Hurt Your Credit Score?

A chargeback allows consumers to dispute a transaction on their credit or debit card, seeking a reversal of funds. This article clarifies the relationship between chargebacks and credit reports, explaining how they function and outlining potential indirect consequences.

What is a Chargeback

A chargeback is a reversal of a transaction initiated by a cardholder through their bank or card issuer. This mechanism serves as a consumer protection tool, allowing individuals to dispute unauthorized, fraudulent, or incorrect charges appearing on their account statements. Instead of seeking a refund directly from the merchant, the cardholder contacts their financial institution to report the issue. The bank or card issuer then investigates the claim to determine its validity. This process is distinct from a traditional refund, where the merchant directly returns funds to the customer.

Direct Credit Score Impact

Initiating a chargeback does not directly harm a consumer’s credit score or appear on their credit report. The core function of a credit report is to detail an individual’s borrowing and repayment history, reflecting their reliability as a borrower. A chargeback, by contrast, is a dispute process between a cardholder and their issuing bank regarding a specific transaction, not a reflection of the cardholder’s ability or willingness to repay debt.

Credit reporting agencies, such as Equifax, Experian, and TransUnion, track information related to credit accounts, including payment history, amounts owed, and the length of credit history. Transaction-level details, like individual purchases or chargeback requests, are not reported to these agencies. Therefore, disputing a charge does not directly influence payment history or other factors that determine a credit score. The financial institution manages the dispute internally, without involving credit bureaus.

How Unresolved Disputes Affect Credit

While initiating a chargeback does not directly impact a credit score, certain outcomes of a dispute can lead to indirect negative consequences for a consumer’s credit. These situations arise when an underlying debt remains unpaid after a chargeback process, or if the chargeback system is misused.

One scenario involves an unsuccessful chargeback where the financial institution sides with the merchant, deeming the consumer responsible for the payment. If the consumer then refuses to pay the outstanding balance, the merchant may send the debt to a collection agency. A debt in collections is considered a serious delinquency and can significantly harm a credit score, remaining on credit reports for up to seven years from the date of the first missed payment that led to the collection. This negative impact stems from the unpaid debt, not the initial chargeback request.

Another potential risk arises from fraudulent chargebacks, sometimes referred to as “friendly fraud,” where a consumer disputes a legitimate charge without valid reason. Abusing the chargeback system can lead to serious repercussions. Merchants may pursue legal action to recover funds, which could result in a court judgment being filed against the consumer. A civil judgment, if reported to credit bureaus, can severely damage a credit profile.

In rare instances of repeated, unwarranted chargebacks, a financial institution might decide to close a consumer’s account. While account closure itself does not directly appear on a credit report as a negative mark, it can disrupt banking relationships and make it challenging to open new accounts with that institution. This outcome is reserved for patterns of severe misuse rather than isolated incidents.