Credit card fraud continues to be a major problem across the United States. Nearly 13 million consumers were victims of credit fraud in 2019, costing them nearly $3.5 billion in out-of-pocket expenses. It’s the most prevalent form of identity theft in the United States. And it’s showing no signs of slowing down. Consumer credit fraud complaints increased by 32% between 2019 and 2020, according to the Federal Trade Commission.
As technology continues to advance, it’s becoming even easier for identity thieves to gain access to consumers’ private data. But being proactive is key. Knowing how to spot fraudulent activity and being swift about reporting it can help prevent credit damage and out-of-pocket losses.
Table of Contents
What is credit fraud?
Credit card fraud is the illegal use of someone’s personal information to withdraw or borrow money without their permission. Someone either accesses and misuses an account they are not authorized to use, or they open new accounts in someone else’s name.
The person whose identity was stolen is then left to deal with the unpaid debt. It can be a lengthy process, but it can and will be sorted out. Be aware that your credit score may temporarily suffer. You may also have trouble applying for new credit. But if you act quickly and document everything, you should be able to deal with any damage that credit fraud can cause.
Types of credit card fraud
There are a few different ways that perpetrators can commit credit fraud. Understanding how you can be targeted can help you protect yourself against each threat you might face.
Application fraud is when an identity thief uses someone’s personal information to apply for a loan line or credit card in that person’s name. This type of credit fraud happens when someone gets your Social Security number, allowing them to open one or more accounts in your name.
You can monitor for this type of fraud by reviewing your credit reports regularly. Your report will show accounts that you did not authorize.
Digging through your trash
Receiving paper credit card statements in the mail rather than electronically may be old school, but plenty of credit cardholders still get a hardcopy statement, eventually tossing it in the trash. If someone gets their hands on your credit card account numbers and other financial information they find in your trash, that sensitive information could be used to steal your identity for unauthorized credit card transactions.
Prevention tip: Shred all credit card statements and other sensitive financial documents. Then sign up to receive paperless credit card statements instead.
Mail interception fraud
This type of fraud happens when you receive a new card or a replacement card for an existing account in the mail. For instance, you may be receiving a new card in the mail because your current one is expiring, but it seemingly never arrives.
This may just be a misstep on the post office’s part, but it may also be a case of mail non-receipt fraud or a never received issue. In this case, the culprit likely grabbed your letter containing your new card out of your mailbox. Make sure to call the credit card company promptly if you have not received a new card within the given time—usually 5-10 business days.
This is a cybercrime that involves perpetrators sending emails to “phish” for credit card or sensitive information. They will usually send fraudulent emails requesting urgent replies to pay for a debt or change your password. You click a link and provide your account information and the thieves get your account information.
To avoid this type of fraud, do not open suspicious emails. Always check the email address to make sure it is coming from the company and not a suspicious address. Only provide credit card information through the credit card company’s secure website portal for customers.
This is the text version of phishing. Avoid clicking on suspicious or unfamiliar text messages that may claim you have not paid for a purchase you made, or it may state that your Netflix account is on hold. It is best to check the individual company’s website or call their toll-free number than to click on the link in a text from an unknown number.
Be aware of criminals posing as representatives for businesses. You may receive a call that even has the Caller ID manipulated to match that of a particular business’s name. This is otherwise known as “vishing.” The perpetrators may call and give you a false spiel about a billing issue that requires immediate action.
Should you fall victim to this, simply tell the caller you will contact the company yourself. If they happen to call back, simply ignore the call or send it to voicemail so you can have a copy of a voice message in case they leave one. You can also block the number.
Using free public Wi-Fi may be convenient, but you’ll pay for that convenience later if hackers steal your credit card number. If using public Wi-Fi, never sign into credit card, bank account, student loan or other financial accounts where thieves can steal your password and account information.
Prevention tip: If you must use public Wi-Fi, use a VPN, a virtual private network that can encrypt all data you send and receive, even while using a public Wi-Fi hotspot.
With the ever-evolving nature of technology, identity thieves come up with creative ways to infiltrate your account. One of the ways they do this is by setting up a tiny camera or device an ATM or gas station pump that will capture your PIN.
Did you know that your credit card number can be stolen at the gas pump and retail sales terminals with a device called a card skimmer? “Skimmers” can be placed over the card reader, allowing thieves access to your credit card number when you swipe. Once they have your credit card number, thieves then make a duplicate to use for fraudulent transactions.
Prevention tip: To make credit card theft by skimming more difficult, use a credit card with an EMV-chip, the square computer chip displayed on the card. To avoid this type of credit fraud, give the card reader a little tug to see if it moves. Otherwise, simply make sure to cover the pin-pad as well as you can.
With this approach, the thief would contact your card issue and use your personal information to change any PINs, passwords and even mailing addresses associated with your account so that they may gain full control. To combat this, some credit card companies go so far as to enable the setup of verbally communicated passwords that are undocumented to help prevent account takeovers.
Cloned or counterfeit cards
Cloning or creating counterfeit credit cards used to be more prevalent because of brick-and-mortar stores. But chip reading equipment and holograms have helped slow this down. However, forgery can and does till occur.
This is the fraudulent process of using a credit card account that does not require possession of any physical card. It is commonly used to make online purchases because it only requires the thief to know your full name, account number and the security code on the card.
And because of the number of date breaches banks have experienced, or because of companies that maintain credit card number databases, card-not-present crimes have become more prevalent.
Spyware and malware
Spyware is a type of malware, an unwanted software program that can maliciously invade your phone, computer or other devices. Spyware tracks your internet activity and can capture your credit card and other account information to steal your identity. For example, spyware can capture your credit card number as you type the digits into an online form while shopping.
Prevention tip: To help prevent spyware, never open emails from unknown senders, download files from unfamiliar or untrustworthy sources or click on pop-up ads. For the most effective protection against spyware and malware, install reputable antivirus software.
Credit fraud by someone you know
Credit card fraud is not always a nameless, faceless crime. On average, more than half a million people that are victims of credit fraud each year knew the person that stole their identity.
Misuse of an account by a family member or friend can still damage your credit and lead to out-of-pocket losses for you. Be very careful when giving anyone your account information. If you are getting divorced or are estranged from someone that knows personally identifiable information like you Social Security number, monitor your credit and your accounts carefully.
Safety tips to help prevent credit fraud
Cyber-thieves are becoming savvier by the day, and they often find creative means to target unknowing victims of fraud. To prevent credit card fraud, try incorporating some of these steps into your routine to prevent you from falling victim:
- When using websites only ever put your credit card number in if it is a secured website. (To be certain of a secure website you would look for https:// instead of http://.)
- Don’t share your PIN or password with anyone. And if you absolutely must, make sure to change it after the person is done using it.
- Avoid using free Wi-Fi networks when making online purchases.
- When possible, make purchases online because you can easily dispute any fraudulent charges.
- Always make sure to clear your CACHE after using a device for any online transactions.
- Sign up for fraud alerts through the credit card company or bank. These will alert you when suspicious activity happens on your accounts.
- Make sure to shred any important documents that may have sensitive information before you throw them away.
- Report any lost cards to your bank or creditor as soon as you have noticed it/they are missing.
- Keep a firewall up to avoid pop-up windows that are often used by cybercriminals.
- Avoid saving credit information on your devices for auto-filling purposes.
How to identify credit card fraud
Trying to detect credit card fraud early is possible if you routinely check for signs of fraudulent behavior on your credit card accounts. Make sure to review your credit card statements every month. If you notice unfamiliar purchases, contact the card issuer right away to dispute the charges.
Generally, you’ll be able to notice red flags if fraudsters have accessed your account and are using your card.
Here are a few signs your credit may have been compromised:
- Unknown charges on your credit statement.
- Access to your account has been blocked.
- Any purchases you try to make keep getting declined.
- Increased call volume from creditors or collection agencies.
- A lower credit balance on your account than you remember seeing last.
How will credit card fraud impact my credit?
Considering that a fraudster will not make timely payments on any stolen credit card or new account, each missed payment will show on your credit report. This will negatively affect your credit score. Payment history accounts for 35% and amounts owed accounts for 30% of your credit score, so missed payments and high balances can have a huge impact.
Even after dealing with identity theft, you can take measures to help raise your credit score if it was impacted by fraudulent activity. Make sure you are reporting any and all mistakes and disputing unauthorized charges and accounts. You will need to provide documentation showing the charges were not authorized, and you may also need to provide a police report that details your fraud case. Otherwise, your credit score can suffer.
The longer identity thieves hold your account hostage, or open credit card accounts in your name, the more damage you will need to have resolved. In this instance, you would file a credit card charge dispute.
A credit card dispute is a claim filed with a credit card company explaining how you are not responsible for certain charges. The Fair Credit Billing Act (FCBA) prevents you from being liable for charges when you report a stolen or lost credit card. Here’s how to dispute a charge:
- Contact your credit card company.
- Dispute the unauthorized charges by sending a letter to the bank or lender.
- Make sure to also send a dispute letter to any banks or credit card companies that report information to credit bureaus.
- Check your credit report a couple months after the report to ensure your credit report reflects the updates.
How much can credit card fraud cost me?
The first thing you should do is breathe a sigh of relief. Why? Well, because under the Federal Credit Billing Act (FCBA) you are not responsible for any unauthorized charges if reported within two business days.
The Fair Credit Billing Act is a federal law used to protect consumers from unfair credit billing practices. The bill allows buyers the rights to dispute not only unauthorized charges but also charges with errors and any undelivered goods or services.
|When is it Reported||Amount You’re Liable (Responsible) to Pay|
|Report theft before the card is used||$0|
|Report fraudulent charges within 2 business days||$50|
|Fraud reported after 2 business days but less than 60 calendar days after you receive your next monthly statement||$500|
|Reported after 60 calendar days||No limit|
As this table shows, it’s crucial to monitor activity on your accounts and review your statements every month. Failing to open a paperless billing statement email will not be an excuse that will save you from losing those funds. If you ignore your statements and someone runs your account up to its limit, you’re on the hook for everything!
How to report credit fraud
Step 1: Notify your credit card company
First, contact your credit card company and explain your situation. A toll-free number should be available on the back of your card. Otherwise, consult the company’s website.
From there, the company will guide you through the process of freezing your account or closing it entirely. We also recommend changing or updating login credentials and PINs associated with the account.
Step 2: Contact a credit bureau
The next step to take would be to contact one of the three credit bureaus (Equifax, Experian, and TransUnion) and place a fraud alert on your credit record. A fraud alert instructs lenders to contact you directly for verification purposes before opening a new credit line in your name.
The reason you would only need to contact one of the three credit bureaus is because once you place a fraud alert on your credit file with one agency, it is automatically applied to all three credit bureaus.
Additionally, you can put a freeze on your credit report. A credit freeze makes it more difficult for identity thieves to open new accounts or make any purchases in your name.
This ensures financial institutions and lenders do not issue any loans or extend any lines of credit because they are unable to view your credit report. Credit freezes can be placed permanently for preventative measures; however, you can temporarily lift a freeze when you want to apply for new credit.
To freeze your credit report, visit their websites or try calling each one through their toll-free numbers:
- Equifax: 888-298-0045
- Experian: 888-397-3742
- TransUnion: 888-909-8872
Step 3: File a report with the Federal Trade Commission (FTC)
Finally, you will need to file a complaint with the Federal Trade Commission (FTC). Once you provide them with the necessary information, they will create an identity theft report and recovery plan. This will prove to businesses that you were a victim of identity theft.
The Federal Trade Commission has also simplified the process of reporting identity theft by eliminating the need for a police report. You can simply report identity theft using IdentityTheft.gov. In most cases, you can use your identity theft report instead of filing a police report unless a creditor or debt collector insists you produce a police report.
Since credit card fraud impacts the lives of thousands of people across the U.S. on a yearly basis, it can lead to many short-term and long-term financial effects. Thankfully, there are options available to help protect you from identity theft. And in case you are dealt an unfortunate hand, there are a multitude of resources available to help you recover. The key is to be proactive, vigilant, and to act swiftly.
Article last modified on June 21, 2023. Published by Debt.com, LLC