Credit card fraud is a serious threat to individuals and businesses alike.
Despite measures such as mobile wallets, chip cards and Near Field Communication technology, consumers are still at risk of fraudulent use of their credit card accounts.
Below, we’ll explain what credit card fraud is, steps you can take to keep your card safe and what to do if the worst happens and your card is stolen.
What is credit fraud?
Credit card fraud is the result of someone making unauthorized purchases on your credit or debit card account. It could be someone you know taking your card and making a purchase without your permission or a stranger gaining access to your credit or debit card number.
Credit fraud can also occur through digital payment methods such as Automated Clearing House, wire transfers or mobile wallets – although Google Pay and Apple Pay are some of the most secure payment methods currently available.
American Express recently conducted a survey about how US millennials and Generation Z think about fraud. Both age groups – 69 percent of them – are worried about fraud on their bank account, even more than someone hacking their social media profiles.
No matter what age group you are in, keeping your credit cards and related accounts safe is possible if you know what to look for and what to do if one of your cards becomes compromised.
How does credit fraud happen?
It helps to understand some of the most common examples of credit fraud. This includes:
- Your credit card number may be stolen if the e-commerce site where you shop is hacked
- Someone can dig through your trash to find account numbers
- Someone can hack into your accounts if you log in over an unsecured Wi-Fi network
- Thieves can use printers connected to merchant payment terminals to access your credit card information when you use the magnetic stripe on your credit card to make transactions.
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How can I spot credit fraud?
Banks have put some measures in place to identify – and stop – credit card fraud. Your bank or credit card provider may call you if they find unusual activity on your account.
For example, let’s say you live in New York and you haven’t told your bank that you’re going on vacation. If a bank receives card activity from South Carolina, it may hold your card or reach out via phone, email or text message to verify that the purchase is genuine.
Your bank or related financial institution may also come across unusually large purchases or multiple purchases that are inconsistent with your normal spending habits.
In addition, you can set alerts for purchases that exceed a certain amount. But be aware that thieves often process a small payment first to see if they can get it. You can also set up your account to be notified of any purchase, regardless of price, too.
Finally, reviewing your credit card statements or going online to check activity can help you stay on top of catching credit fraud in time.
Related: Credit card fraud: How to spot it and report it
How can I avoid credit card fraud?
The first step to preventing credit card fraud is realizing that it can happen to anyone, no matter how smart they are. In fact, a thief could gain access to your card information if you made a purchase through a secure, reputable e-commerce site that later became involved in a major data breach.
It happens. But there are steps you can take to protect yourself:
- Pay with EMV (the tap-to-pay card developed by Europay, Mastercard and Visa which is now a global standard), NFC “contactless” payment or mobile wallet whenever possible.
- Avoid paying by card at businesses that only have a magnetic stripe payment system, if possible.
- Separate all credit card statements before disposing of them.
- Use a secure wireless network when shopping online or accessing your financial accounts.
- Set up alerts to quickly detect if your card has been used fraudulently.
- Do not give your card information to anyone.
- Protect your smartphone and tablet with passwords.
- Monitor your credit card and other financial accounts regularly.
“Raise your mobile security: Help prevent account takeover by using strong and unique passwords for each of your online accounts, and changing them regularly,” said Rajat Jain, senior vice president of risk management and information, fraud and banking risk at Amex. “Where possible, download apps and enable two-factor authentication for your online accounts, which adds an extra layer of security by requiring a code, fingerprint or device to verify your identity. Also, watch out for phishing emails or messages, and do not click on any links, open any attachments, or provide account or personal information to parties you are unsure of.”
What is the difference between credit fraud and identity theft?
Some people use the terms credit fraud and identity theft interchangeably. It’s true that credit fraud is a form of identity theft – but credit fraud is usually limited to breaching a specific account, not your entire credit file. Credit fraud can be expensive and time-consuming for its victims, but it’s much easier to recover from a single incident of credit card fraud than it is to recover from identity theft.
In the case of identity theft, the hacker or criminal gains access to your financial information not only to use your credit cards or accounts but also to open new accounts in your name.
Once thieves have your social security number and address, they can take out loans, apply for loans and even get insurance — such as health insurance or auto insurance — in your name. When this type of crime occurs, it is called “true name fraud.”
Solving an identity theft case involves tracking down all the instances where the thief used your information, proving you didn’t open fake accounts and getting them closed. It can take years to recover from identity theft.
Related: Credit card fraud vs. identity theft — how to tell the difference
What should I do if I am a victim of credit fraud?
Fortunately, recovering from credit card fraud is easier than solving an identity theft case.
If you find yourself a victim of credit fraud, the first thing you should do is contact your bank and report the fraudulent charges. Review your statements to make sure you’re reporting all fraudulent charges and make sure you can account for all card purchases in the past two months or more.
Under federal law, you cannot be charged for fraudulent credit card charges over $50 as long as you report them within 60 days. Visa, Mastercard, American Express and Discover all have no-credit fraud policies. If you report fraudulent charges promptly, you may not have to pay any of them.
Similarly, the Electronic Funds Transfer Act limits your debit card fraud liability to $50 if you report charges within two business days or $500 thereafter. Your credit card issuer may recommend that you file a police report about the fraudulent activity.
If thieves steal credit card information from one of your accounts, there’s a chance they’ll gain access to another account. So, check all your accounts for fraudulent activity, too.
Finally, change your passwords on any financial accounts and e-commerce sites like Amazon, where you may store your credit card information.
Bottom line
Once you have taken immediate action to stop further fraudulent activity, request copies of your credit reports from all three credit bureaus to ensure that the fraud does not go from credit fraud to identity theft.
As security measures increase with the introduction of mobile payments, EMV chip cards and contactless payment systems, thieves are also getting smarter.
Keeping track of your accounts and acting quickly if you see unusual activity are always the best ways to save yourself the stress and hassle of dealing with credit fraud.
Related: So you fell victim to a scam: 5 steps to take when your personal information is compromised
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