Many or all of the companies featured provide compensation to LendEDU. These commissions are how we maintain our free service for consumers. Compensation, along with hours of in-depth editorial research, determines where & how companies appear on our site.
Credit card fraud is a prevalent issue in today’s financial world – and it’s only going to get worse. In 2014 alone, over 1,500 corporate data breaches occurred, compromising more than one billion personal data records that included names, addresses and phone numbers, security information such as passwords, and in some cases even credit card numbers.
In case you thought maybe 2014 was just a bad year, it’s important to note that in 2016, credit card fraud losses were over $24.7 billion, up 12% from the previous year. Almost half of all credit card fraud happens in the United States, and 47% of Americans report having experienced some sort of fraud on their credit card accounts.
What Kinds of Fraud Are There?
Credit card fraud takes several different forms, and while we can’t cover every possible type in this article, here are many of the more prevalent ways that a criminal can use your credit card for fraudulent purchases.
Application fraud happens when someone applies for new credit in your name. It’s a part of identity theft – in order to obtain credit in your name, the thief needs to also steal your identity, such as your Social Security number, date of birth, mother’s maiden name, and other information commonly used to apply for a new credit account – some of which is often available online through background check sites, people searches, and even your own Facebook page.
Replacement Card Fraud
Criminals aren’t above stealing your mail, either, and if you were expecting a new or replacement card, some fraudsters will steal it out of your mail. Intercepting the card means they have the physical card in hand, and can register or activate it themselves, using it for purchases while you’re the one stuck with the bill.
One of the more disturbing ways your credit card can be fraudulently used is called CNP fraud, or “card not present.” This means that someone was able to get your account number and expiration date, and is using it to make purchases online or by phone. Many merchants now ask for the CVV code on the back of your card in an effort to prove that you are the owner and holder of the physical card, but not all merchants do this. That means any criminal who is in possession of your card number and expiration date can make purchases at any merchant who doesn’t ask for the CVV code.
Card imprinting is another form of fraud. You’ve probably noticed your credit card has a magnetic strip; a thief can use what’s called a skimmer to take the information contained in that strip. That information can then be used to create a new card, effectively cloning yours. When the new card is used, its transactions are charged to your credit account. Even though the magnetic strip or chip on their fake card won’t work, they can talk the merchant into entering the card number and expiration date manually – which means your card gets charged for the purchase they’re making.
An account takeover is a particularly nasty form of criminal activity. In this type of fraud, a criminal has stolen your supporting documents – birth certificate, SSN, etc. – much like the above-mentioned application fraud. Instead of applying for new credit, however, they contact your credit card company and pretend to be you. They have all the necessary information to verify your account, and they ask the card company to change the address and send a replacement card.
How Does Credit Card Fraud Happen?
You might be thinking there’s no way any of this could happen to you with your credit cards. You’re not exactly leaving your credit cards out at Starbucks or anything. Unfortunately, there’s a good chance that much of your normal behavior offers criminals a way in; remember, 47% of Americans experience credit card fraud, and many of them are just as careful as you are.
Sadly, entering your card details for an online purchase can often put you at risk for fraud. Some merchants don’t use strong encryption for their transactions, which means the information you’re sending can be intercepted by an unscrupulous hacker. While big merchants such as Amazon put encryption in place, not all merchants have the same level of fraud protection for their customers.
The skimmers we talked about earlier can be found anywhere; they’re just a little device that fits over where you swipe or insert your card. As this CBS affiliate news story shows, skimmer use on everything from gas pumps to ATMs is on the rise.
Of course, losing your credit card or having it stolen is the easiest way to become a victim of fraud. Since many merchants don’t ask for identification when you use your card. If a criminal has your card in hand, it’s fair game.
What Can Happen to You If You’re a Victim?
Your Credit Score Can Be Affected
Many consumers think that because their credit card company offers a ‘zero liability’ policy for unauthorized charges, that it’s a minor issue if they are billed for fraudulent transactions. They can just call the credit card company and let them know that it’s a fraud charge and then it just goes away, right? Well, not exactly. In reality, being the victim of credit card fraud can harm you for years to come.
If you’ve been the victim of a skimmer or CNP fraud, you might not be aware of it until you get your next credit card bill – and by then, the criminals could have racked up thousands of dollars in charges or even pushed your card balance over its credit limit, leading to fees and additional charges on your account.
That amount, once reported to credit agencies like Equifax or TransUnion, will show your credit use ratio (the amount of credit you have used, compared to what you have available) as being much higher. That ratio is a large part of your credit score; anything over 30% will drop your credit rating significantly. If this is left undetected, then it could adversely affect your credit score in the meantime.
It’s easy to prove that charges on your card are unauthorized if they’re showing up on international purchases when you haven’t been traveling. If, however, the charges were made in the city you live (such as by a local skimmer), you might have a hard time convincing your credit card company that you didn’t make them. That means you might still be liable for paying the charges off – and it could take years to repair any damage to your credit rating.
You May Have an Account Go Delinquent
Even if you catch the fraud right away, any other accounts that bill your card monthly could go delinquent while you’re cleaning up the mess and waiting for your replacement card. That could lead to late charges and other issues with your other accounts.
Future Applications May Be Denied
If you don’t notice that you’re a victim at all, you could end up paying for purchases you didn’t make – and not even know you’re paying for them. If you try to buy a home, car, or finance any other type of purchase you could be denied. If your credit rating is negatively affected, you could find yourself being turned down for jobs or even unable to rent an apartment. That’s not even counting the day-to-day effects of having your personal finances drained by a complete stranger.
If you even think you may be a victim of credit card fraud, there are a few actions that you need to take immediately.
What Steps Should You Take After Falling Victim to Credit Card Fraud?
Call Your Credit Card Issuer
The first thing you need to do if you think your credit card has been compromised is to call your card issuing company and ask to speak to their fraud department. Their representatives will ask you questions about why you think your card is compromised, and go over your last few transactions to ensure that you are the one who made them.
They’ll also cancel your card, issue you a new account number, and send out a replacement card. That stops whoever is using your number from being able to make new purchases, and effectively ends the fraud.
Keep in mind that if you have recurring monthly charges on your card, you’ll need to contact each merchant and give them the new card number, as the autopay won’t automatically transfer over.
If you already have fraudulent charges on your account, the credit card company will open an investigation. Some companies will put a credit on your account while they investigate, effectively giving you the benefit of the doubt so that your credit use ratio and balance don’t increase. If the charges are found to be fraudulent, then you’ll receive notification that the credit is permanent when their investigation is finished.
If the card company decides that they cannot prove the charges are fraudulent, they will take back the credit they applied to your account for those charges, and you’ll need to appeal their decision or simply pay for the items yourself.
Freeze Your Credit Report
The second thing you need to do is freeze your credit report. This flags your account so that no one can apply for credit in your name. Even if the criminal has your SSN, mother’s maiden name, or other verifying information, they won’t be able to open new credit.
The flip side of that is that you won’t be able to open a new credit account either. If you want to apply for a loan or other credit account, you’ll need to unfreeze your credit report. You can do this by visiting the websites of the various credit agencies: TransUnion, Equifax, and Experian.
Contact Accounts With Recurring Bill Payments
Thirdly, you’ll want to contact any accounts that bill your card on a recurring basis, and give them either a different card number, or set up an alternate method of payment until you have your new card number. This will eliminate extra late charges or missed payments from hitting your credit report.
If you’re thinking that all of this sounds like an awful thing to go through, you’d be correct. Prevention is by far the best option. But how can you do that? Read on.
Credit Card Fraud Protection: Steps to Take
Be Extra Cautious When Using Your Credit Card
Earlier we talked about some of the different types of fraud that exist. One of the biggest things you can do to protect yourself from all types of credit card fraud is to be extremely careful when using your card to pay for purchases.
Before purchasing something online, pay attention to where you’re putting your card information. Is it a reputable seller? Is there a link that explains the type of encryption the merchant uses to protect your information? Can you use a payment method that hides your credit card number, such as Paypal?
Use a Gift Card
You could also use a gift card merchant such as Gyft to purchase a gift card for the store or website you want to purchase from, and use that card to pay for your items. If you can acquire a gift card, then you’d be able to make a purchase with a layer of security.
However, purchasing the gift card would be a risk in itself, so make sure your information is protected when buying a card, either online or at the cashier’s desk.
Pay Attention to How Merchants Handle the Check-Out Process
When making purchases in-person, be mindful of where you hand someone your card. Most reputable merchants will be able to complete your purchase right there at the point of sale. Be wary of stores that take your card and disappear into a back room or out of your sight to run the card. Because restaurants often run your card out of sight, you may want to even consider using a different method of payment, such as cash, gift card, or electronic payments like Google or Android Pay.
Don’t Lose Track of Your Credit Card
It should go without saying, but you should protect your physical card. Don’t lend it out to friends or family, or leave it lying around even in your home. Know where your card is at all times; some people keep most or even all of their cards at home in a safe place unless they are going to need it for a specific purchase.
While it’s a bit more inconvenient than always carrying all their cards, it also means that if they lose their wallet or have their purse stolen, thieves don’t suddenly have a wide array of credit cards available to them.
Watch Out for Skimmer Devices
At gas stations, ATMs, and other places where you swipe your card yourself, you should be wary of skimmer devices installed. There are several ways to check for them; one is simply giving the swipe mechanism a good pull. A skimmer will be attached just enough to stay there, and will pop off if you pull hard on it.
Some skimmers use Bluetooth technology, so the devices are discoverable by other Bluetooth-enabled things – such as your phone. There are also apps that search for skimmers on Bluetooth and alert you if something is amiss.
Monitor Your Credit Report
Looking at the big picture, there are a few more things you can do. Monitoring your credit report for new accounts or sudden changes in balances is critical. Several free and paid services exist for this – Credit Karma is a free app that will alert you of any changes or new applications on your credit report, and the credit reporting agencies also offer monitoring.
Speaking of the reporting agencies, the ‘credit freeze’ we discussed earlier might be a solid option as well. Many people, in an effort to prevent fraud, keep their credit report frozen all of the time, whether they’ve been the victim of fraud or not. It’s a preventative measure that keeps others from applying for new credit in your name. If you decide to apply for credit yourself, you can always unfreeze it long enough to make the application.
Monitor Your Credit Card Statements
You should also be looking closely at your card statements each month. Make sure that all charges were made by you, and report them immediately if you have a question. Since credit cards usually offer online access to transaction records, it’s a good idea to check regularly. Sign up for fraud alerts; most companies allow you to set up a threshold where you’ll be notified by text if any purchases are made over a certain dollar amount.
As you’ve seen, credit card fraud is a real problem that costs billions each year. It ruins credit ratings, personal finances, and causes problems that can last for years. Being vigilant about how and when you use your card, however, can make all the difference. You don’t have to be a victim of credit card fraud – and if you take steps to prevent it, you can significantly reduce the risk that you will be.
Author: Jeff Gitlen
Best Credit Cards by Type
Credit Cards by Brand