What Is Credit Card Fraud?
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Credit card fraud happens when someone uses another person's credit card without their consent. The fraudsters then leave the victim to deal with the unauthorized charges.
Whether someone's making purchases in person or onGuiline transactions, the result is the same: Your credit card statements arrive full of fraudulent credit card charges.
While there are types of fraud that the card's authorized owner can commit, such as credit card chargeback fraud, this article will focus on how a malicious third party can hurt a credit card owner.
How Does Credit Card Fraud Work?
There are lots of different ways to use a credit card account for unauthorized activities.
Crooks can steal your card, buy your credit card information, impersonate you over the phone and even open new cards in your name. The criminals then make fraudulent use of your credit card, buying whatever they want.
Common Types of Credit Card Fraud
To know how to prevent credit card fraud, it helps to know the methods that criminals use. The following five examples of credit card fraud are the most common.
Card-Not-Present Fraud
Everyone buys stuff online, and you don't actually need your card on you — just the information written on it. Sites usually need your billing address as well, though that's not hard to come by.
Card-not-present fraud involves getting ahold of this credit card information and using it to buy things from places that don't need your physical credit card. Although this usually takes the form of online credit card fraud, scammers can also use your credit card information over the phone or by mail.
Credit Card Skimming
People typically use a card reader when making an in-person purchase with a credit card. These readers gather all the information stored on your card. Unfortunately, fraudsters can read and store your credit card information in the same way by inserting an electronic device, called a "skimmer," into a card reader — usually by finding unmanned locations such as gas pumps and ATMs.
Credit card companies tried to put a stop to this sort of fraud using the newer chip-and-PIN cards, but a new device called a "shimmer" can steal information from chips, as well. Once the crooks have your information, they can create duplicate credit cards, use the credit card information for online purchases and even sell the information.
Credit Card Application Fraud
This type of credit card fraud is disturbingly simple. It starts with someone filling out a credit card application using your identity. After getting approved and receiving the card, they rack up as many charges as possible.
Sometimes, you will only know about the fraudulent use of this credit card once you check your credit report or, even worse, start getting calls from a collection agency.
Account Takeover
Account takeover is one of the fastest-growing forms of identity theft. It happens when a thief successfully gains access to your credit card account after acquiring your login information. Not only can this lead to fraudulent activities, but it can also end up with you getting locked out of your own account.
Lost or Stolen Credit Card Fraud
One of the simplest types of credit card fraud is this: Someone takes your card, uses the card and leaves you to deal with the aftermath.
No matter how the scammer got your card, the thief has the opportunity to buy hundreds or thousands of dollars worth of goods before you realize the card is missing.
How Does Credit Card Fraud Happen?
According to credit card fraud statistics, 65% of credit card holders have suffered from some form of fraud. So, how do the fraudsters do it? While stealing a physical card and using a card skimmer are self-explanatory, there are less obvious ways that criminals can get their hands on your credit card information.
Data Breaches
It seems like another company or agency falls victim to a cyberattack every day. Depending on the nature of the breach, sensitive information from hundreds of thousands of customers can fall into the wrong hands. Hackers can get their digital hands on your passwords, account information, credit card numbers and even Social Security numbers, much of which ends up getting spread on the dark web.
Phishing
Even some of the most tech-savvy people can unwittingly click on a link that looks legit but is actually a scam, then enter a username, password or personally identifiable information. This is known as a phishing attack, a growing form of identity theft that's been used to steal billions of dollars from companies and individuals around the world.
Malware
Malware is a catch-all term for any malicious program designed to infect your phone, computer or other device. These programs can steal sensitive information that can be used to commit credit card fraud.
You can get malware by downloading content from sketchy sites, opening attachments from phishing emails and even from hackers exploiting flaws in system software.
Social Engineering
Sometimes, criminals can get their hands on your credit card information through nothing more than smooth talking. They may contact you or a service you use and pretend to be a bank, a tech company, a government agency or even you yourself as they talk their way to your information.
How To Report Credit Card Fraud
If someone has stolen your credit card or is making fraudulent purchases in your name, you should report the fraud immediately. Here's what to do.
Contact the Credit Card Company
Contact your credit card company's fraud department through its customer service number, or a specialized fraud number found on the back of your credit card.
The fraud team will help you through the process of closing or freezing your account. You should also change your login information and PINs, as these may have been compromised. The company should also allow you to dispute fraudulent charges so you don't have to pay them.
In the event that your credit card issuer doesn't accept your claim, you may have to contact a credit card fraud attorney.
Contact a Credit Bureau
If your identity has been stolen, you'll want to make sure the crooks can't continue using your personal information to open accounts in your name. All three credit bureaus — Experian, TransUnion and Equifax — allow you to place a one-year fraud alert on credit applications. Once you contact one bureau, they're required to call the other two and inform them of your alert.
Once a credit fraud alert is placed, companies will be encouraged to take extra steps to ensure that the person opening a credit card in your name is actually you. One common method is to call the phone number you provided when setting up the alert.
Contact numbers for each bureau are:
- Experian: 888-397-3742
- TransUnion: 888-909-8872
- Equifax: 800-685-1111
While usually effective, a credit alert won't guarantee that credit card companies actually verify your identity. When it comes to opening new accounts, if you want the best credit card fraud protection, you should look into how to freeze your credit. A credit freeze prevents anyone from opening an account in your name until the freeze is lifted.
Report It To the FTC
Fraudsters can hurt your credit score by applying for too many credit cards at once, getting you into massive debt with nobody to pay the fraudulent credit card bills.
To start repairing your credit, file an identity theft report with the Federal Trade Commission (FTC), the government agency in charge of consumer protection. Reporting credit card fraud to the FTC helps prove that your credit card information was stolen. This will also help you dispute fraudulent charges and allow you to tell the credit bureaus to remove fraudulent information from your credit report.
To file a report, you can call the FTC at 877-438-4338 or fill out their online form.
Report It To the Police
If you want a fraudster to face punishment, it helps to make a credit card fraud report to the police. Contacting local law enforcement will help kickstart the credit card fraud investigation — and it's sometimes necessary to get your credit card issuer to accept a report of credit card theft.
The credit card fraud statute of limitations is just five years, so reporting credit card fraud quickly is more likely to get results. Local police will be most helpful if you know who committed the crime, or if you have evidence to assist in the credit card fraud investigation process.
How To Prevent Credit Card Fraud
There are services out there that give you the best identity theft protection, which will help with credit card fraud detection. The best credit card fraud detection services, such as Lifelock, will not only monitor your credit cards for you, but also come with up to $1 million in identity theft-related insurance coverage.
There are also steps you can take in your day-to-day life that will make credit card fraud less likely.
Create Strong Passwords And Use Two-Factor Authentication
If your password is just a single word or something easy to guess, like your kid's birthday, then it's susceptible to a brute-force attack. Instead, use a string of multiple words, along with numbers and special characters. Even better, use a password manager that can generate strong, randomized passwords and store them for later use.
You can also use two-factor authentication, which requires you to verify logins via an app, email address or text message. A bad actor who has your password won't be able to access your account if they don't also have access to your phone or email address.
Regularly Monitor Your Credit Card Accounts
Almost every bank and credit card company has methods for credit card fraud detection, but no system will ever be perfect. You can't simply rely on their credit card fraud alerts — take part in the credit card fraud protection process yourself!
It's harder for a crook to get away with credit card fraud if you look closely at your credit card statements regularly. If something seems amiss, report it fraud to your credit card issuer immediately.
Be Careful When Sharing Personal Information
Make sure you never share sensitive personal information with anyone over the phone, via email or even in person unless you're 100% sure of the recipient's identity. Also, be wary of any email links or attachments sent from unfamiliar addresses, which might be phishing attacks.
Remember, your bank will never call you and demand money, or ask for your account number or password. Neither will Microsoft, Apple, Google or any government agency.
Scammers often impersonate people in authority to pressure you into giving them your information. Don't fall for it.
Use Secure Websites And Payment Gateways
Never enter personal information on a website with an unencrypted connection. Sites without an HTTPS connection can expose your information to anyone who cares to look.
Anyone can set up a site with an HTTPS connection — you can still send your credit card information directly to a fraudster via a secure website. When making payments online, use bigger websites that you trust, or sites that use trusted gateways such as Square, Stripe or PayPal. If you don't recognize the gateway, research it first.
Choose Contactless Payment Options
So far, nobody has managed to compromise the new tap-to-pay contactless payment system. By encrypting all the data it sends to the card reader, criminals can't get any useful information out of a transaction.
Is Credit Card Fraud a Felony?
The penalty for credit card fraud can be stiff. If enough is stolen, it can even be a felony. The laws vary by state, but the distinction between misdemeanor and felony credit card fraud usually mirrors the state's theft laws.
For example, both California's theft laws and credit card fraud laws count stealing less than $950 as a misdemeanor, and anything more as a felony. Other factors, such as how many stolen cards you possess, or how many people you've defrauded, also play a role.
Even misdemeanor credit card fraud can mean jail time. In California, a misdemeanor credit card fraud sentence can result in up to 364 days in county jail and a $1,000 fine. Felony credit card fraud charges are even steeper — they can result in up to three years in jail and a $10,000 fine.
Summary of Digg's What Is Credit Card Fraud
Whether your card is stolen, your credit card number is exposed or unwanted accounts are opened in your name, you'll deal with unwanted charges, damaged credit and the giant hassle of setting things right. If you're a victim, contact the credit card issuer, a credit card bureau and the FTC to help put the fraud behind you.
It's better to simply never be the victim of fraud to begin with, so never give your personal information to sketchy sites, avoid opening attachments and links from suspicious emails and monitor your credit card accounts for suspicious activity.
