Credit card fraud and identity theft are two terms you may have heard of before. And if you’ve been unlucky, you may have been a victim of one of these two crimes yourself.
However, credit card fraud and identity theft are not the same. Both may involve the theft of your personal information, but the other is much easier to stop and recover from.
Read on to see how credit card fraud and identity theft differ. Also, I’ll throw in some tips on how to recover from this crime if the bad guys get your personal information.
Credit card fraud
Have you ever been contacted by a credit card issuer about suspicious activity that you did not authorize? Or have you checked your credit card statement for charges you didn’t make? If you can answer yes to any of these questions, you have probably been a victim of credit card fraud.
The FBI defines credit card fraud as “the unauthorized use of a credit or debit card, or similar payment instrument (ACH, EFT, recurring charge, etc.), to fraudulently obtain money or goods. Credit and debit card numbers can be stolen from unsecured websites or obtained through a phishing scheme identity.”
Technically, credit card fraud can be classified as a form of identity theft. However, it’s not exactly the same as having your identity stolen.
Of course, it can be difficult to find out if someone has stolen your credit card information. It can be upsetting to know that a thief has used your account to pay for an unauthorized purchase. However, credit card theft is usually much easier to stop and fix than other types of identity theft.
For example, TPG credit card writer Danyal Ahmed had his Chase Sapphire Reserve® compromised within two days of receiving the card in 2016. He used his card for the first time to pay for food at a restaurant, and soon after that he used his card. per transaction, her card had nearly $10,000 in unauthorized charges.
See below for tips on how to handle credit card fraud if it happens to you.
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Identity theft
Identity theft is a term that professionals often use to describe something far worse than a few unauthorized charges on your credit card account. According to the FBI, “identity theft occurs when someone assumes an identity to commit fraud or other criminal activity.”
How do criminals get the information they need to impersonate you? The FBI explains that scammers can obtain your personal information from a variety of sources, such as:
- Stealing your wallet
- Shooting in your trash
- Compromising your credit or banking information
- Coming to you (in person, by phone or online) to request information
When someone steals your personally identifiable information (eg, name, address, Social Security number, date of birth, etc.) and uses that information to open fake accounts in your name, this is called true fraud. When most people say they have been stolen, name fraud is the crime they are referring to.
Unlike credit card fraud, real estate fraud has the potential to haunt you for years. Trying to recover from identity theft can be a bigger problem than simply changing your credit card number to stop the thief. Fortunately, there are federal laws designed to protect victims of identity theft.
See below for tips on how to recover from identity theft if it happens to you.
Recovering from credit card fraud
If someone uses your credit card without your permission, my first advice is not to panic. Because of federal law, you are actually well protected from debt fraud.
In fact, as long as you report fraudulent charges promptly (within 60 days), you will likely not be liable for fraudulent transactions.
Here’s a look at the two main federal laws that protect you from credit card and debit card fraud.
- The Fair Credit Billing Act (FCBA): FCBA limits your liability for fraudulent credit card purchases up to $50. Just don’t drag your feet. You must report any unauthorized charges to your card issuer within 60 days to enjoy this protection. In terms of customer service, all four major credit card networks now have zero credit fraud policies. This means that if you report your card transaction immediately, you won’t pay a dime out of pocket.
- Electronic Funds Transfer Act (EFTA): EFTA covers your credit for debit card fraud over $500 ($50 if you report the fraud within two business days). In addition to high credit caps, debit card fraud can be especially painful for another reason. Unlike credit card fraud, it is your personal money that the thief steals when debit card fraud occurs. As a result, funds in your bank account may be frozen and unavailable for use while your bank investigates any unauthorized activity.
As you can see above, debit card fraud protection is not as strong as credit card fraud protection. This is one of the reasons I advocate that many people may want to choose credit cards over debit cards as their payment method. The key here, of course, is to make sure you commit to paying your balance in full each month.
Related: 10 tips for TPG rewards credit card
Recovering from identity theft
If someone steals your credit card information, you can report the fraud to your card provider, and they will close the account. As long as that thief doesn’t have access to your new card number (hint: update your online passwords regularly for extra security), the hassle should be over.
The same is not true if your personal identifying information is stolen.
You cannot properly change your Social Security number and date of birth to prevent fraudsters from using your information for their own personal gain. But the good news is that you can make it more difficult for the bad guys to profit from your personal data.
Here is the way.
- Add fraud alerts to your credit reports with Equifax, TransUnion and Experian: The Fair Credit Reporting Act (FCRA) gives you the right to place free fraud alerts on your credit reports with all three major credit bureaus. When you enter a fraud alert, it tells lenders that they must first contact you to verify your identity before opening any new credit accounts in your name.
- Set up your three credit reports: With a fraud alert, the lender must ask for your permission before opening a new account in your name. This leaves little room for human error. With a credit freeze, on the other hand, new lenders can’t access your reports without it you let your reports be seen. (This is accomplished by “digesting” your messages beforehand with a PIN code or password.)
- Check your credit reports regularly for signs of fraud: The FCRA allows you to expect only accurate information to be included in your credit reports. It is up to you, however, to ensure that your reports are truly error-free. If you haven’t run your three free credit reports on AnnualCreditReport.com in the past 12 months, that’s a good place to start. Additionally, I recommend checking your credit reports at least once a month as an extra safety measure. (Tip: Checking your own credit report will never hurt your score.)
- Report identity theft immediately: If you become a victim of real name fraud, it is important to report the fraudulent accounts to the three credit reporting agencies immediately. You can visit the Federal Trade Commission’s IdentityTheft.gov to create a report. Once done, submit your identity theft report to Equifax, TransUnion and Experian. According to the FCRA, credit reporting agencies must block fraudulent information from your credit reports within four business days of receiving your theft report.
Being busy is key
Whether you’re a victim of credit card fraud or identity theft, it’s important to take action. You can’t expect your card issuer or credit reporting agencies to detect fraud (although sometimes you might get lucky). It is your responsibility to make sure that your credit reports and credit card statements contain accurate information.
Get in the habit of checking your credit card statements and your three credit reports each month for mistakes, errors, and fraud. If you find suspicious activity, remember that you are protected by federal law as long as you report the matter immediately.
Bottom line
Although both credit card fraud and identity theft are serious situations, you can recover quickly from credit card fraud due to federal laws and credit card debt protection. On the other hand, identity theft is a much bigger problem when your personal information, such as your SSN, date of birth, and address, is compromised. In any case, report suspicious activity immediately to your credit card issuer and credit reporting bureau to ensure you are protected.
Related: How to check your credit score for free
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