Understanding and Preventing Credit Card Fraud

Credit card fraud affects hundreds of thousands of Americans each year. While fraudsters are continually evolving their tactics to catch their victims unsuspecting, knowing what credit card fraud is and how it works can help you defend yourself. Here’s what you need to know about this pervasive crime, and what you can do to avoid becoming a victim yourself.

What Is Credit Card Fraud?

Credit card fraud is the unauthorized use of a credit card account for purposes of stealing goods or money. The Federal Trade Commission (FTC), which tracks financial crimes nationwide, logged 426,038 complaints of credit card fraud in 2023. That’s a 5% decline in the number of credit card fraud complaints year over year, down from 448,466 in 2022.

Types of Credit Card Fraud

The FTC distinguishes between two types of credit card fraud complaints: those involving new accounts and those involving existing accounts:

• New account fraud: This occurs when criminals establish a bogus credit card account in the victim’s name, then make purchases or take cash advances that will never be repaid. New account scams accounted for 89% (381,164) of credit card fraud complaints in 2023, down from 91% (409,054) in 2022.
• Existing account fraud: This encompasses theft or abuse of victims’ physical credit cards or account numbers and account takeover—use of stolen credentials to change passwords and contact information to shut out the true owner of an account so it can be abused. The percentage of complaints related to existing accounts increased, from 9% in 2022 to 11% in 2023.

How Does Credit Card Fraud Happen?

Credit card fraud can happen through a combination of criminal tactics. Here are six common ways credit fraud may occur:

• Card theft: Theft of a physical credit card, which may be used at ATMs to obtain cash advances or to buy gift cards or merchandise.
• Skimmed card information: Abuse of account holder information captured with a “skimmer”—an innocuous-looking card scanner placed over the slot on the card reader at an ATM, gas pump, or other self-serve kiosk, which steals card information as you make a legitimate transaction.
• Cloned cards: Cloning a credit card entails stealing the personal information customarily stored in a card’s magnetic stripe or embedded chip and then using that data to fabricate a card that works like the real thing. Crooks then run up your account balance quickly, disappear, and leave you with the bill.
• Bogus “card not present” transactions: Use of stolen card information to place orders online or by phone—known as card-not-present (CNP) transactions—don’t require use of a physical card.
• Data breaches: During a data breach, hackers can steal personal information, including names, addresses, dates of birth, passwords, and credit card and Social Security numbers. Stolen data can enable crooks to set up bogus credit card accounts or hack into existing ones. Batches of this stolen data are often bought and sold on illicit exchanges found in the hidden dark web.
• Phishing: Use of technology to trick victims into giving up personal information is another way criminals get data needed to open fake credit card accounts or take over existing ones. If crooks use email in this way, the tactic is called phishing; if SMS/text messages are employed, it’s known as smishing; and if voice calls are used (often with the assistance of automated robo-dialers), the technique is known as vishing.

How to Identify Credit Card Fraud

The best way to detect credit card fraud is to watch for signs that someone pretending to be you is seeking or using credit in your name. Here are some ways to do that:

Check Credit Card Statements Regularly

Whether you receive your statements online or as hard copies, it’s important to examine the transaction histories on all of your credit cards to check for suspicious activity. Do so for cards you seldom use as well as the ones you reach for regularly, and keep in mind that discrepancies don’t have to be glaring to raise a red flag: Identity thieves sometimes run test transactions involving very small sums to confirm access to an account, as prelude to taking it over or making a more substantial charge later.

Keep Tabs on Your Credit Reports

Regularly checking your credit reports from all three national credit bureaus (Experian, TransUnion, and Equifax) can help you detect attempts to obtain credit in your name. You can get your credit reports free once each week at AnnualCreditReport.com. Study them carefully, noting the appearance of any new accounts you don’t recognize or any hard inquiries that are unfamiliar. (Lenders typically perform hard inquiries when they are processing new credit applications.)

Don’t Ignore Debt Collectors

If you receive a letter or phone call seeking payment of a bill that doesn’t belong to you, don’t ignore it. It could indicate that a criminal opened an account in your name and then abandoned it after running up charges or cash advances. Contact the debt collector and, as appropriate, follow up with the relevant card issuer (and appropriate law enforcement agencies).

How Does Zero Liability Protection Work?

Zero liability protection is a feature of many (but not all) credit cards that shields you from financial responsibility for fraudulent charges made on a stolen card, provided you take reasonable care to protect your cards and report any theft or unauthorized charges promptly. Zero liability protection supplements federal law that limits your maximum liability for unauthorized charges to $50, provided you report the theft within 60 days.

Because credit card fraud is common and often outside your control (in the case of a data breach, for instance), zero liability protection is a good feature to look for when comparing credit cards. Understand that you must pay attention to your account and report suspicious charges or the theft or loss of a card as soon as you’re aware of it.

What to Do if You’re a Victim of Credit Card Fraud

Steps to take immediately if you believe you’ve become a victim of credit card fraud include the following:

• Notify your lender: As soon as you think your card may have been stolen, or you discover suspicious transactions on your account, notify the card issuer by phone or through the card’s phone app or web dashboard. The sooner an issue is reported, the more quickly the card issuer can investigate, and the quicker they can resolve any unauthorized charges.
• Lock your accounts: You can use the card lock feature of many credit cards to block new transactions without interfering with recurring payments you may have assigned to the card. This is a good tactic for seldom-used cards, or anytime you think a card is misplaced, but you still expect to get it back.
• Lock your credit reports: If you’re victimized by credit card fraudsters or notified that your personal information has been exposed in a data breach, you have the right to place a fraud alert, security freeze, or credit lock on your credit reports. A fraud alert requires lenders to verify your identity before processing any credit application made in your name. Security freezes and credit locks are functionally equivalent: Both block most credit checks altogether (and must be removed before you can apply for new credit cards or loans).
• Set up credit monitoring: Credit monitoring services alert you, via email or text message, when certain new information is posted to your credit reports, including new credit applications, newly established accounts, and bills sent to collections. This can help you detect credit card fraud and other forms of identity theft quickly, so you can take action quickly and minimize their impact.
• Notify appropriate law enforcement: Credit card fraud is one form of the crime known as identity theft, so reporting it at the FTC’s IdentityTheft.gov website is a good starting point. Your card issuer may recommend involving additional authorities.
• Notify the credit bureaus as needed: Review your credit reports regularly and, if any suspicious entries appear there, exercise your right to dispute inaccurate credit report information and have fraudulent information removed. It can take days or weeks for lenders to report events to the credit bureaus, so illicit actions taken before you activate a fraud alert, security freeze, or credit lock can still turn up afterward.

How to Avoid Credit Card Fraud

Adopting these habits can help you avoid becoming a victim of credit card fraud:

• Safeguard your cards: Keep the cards you use regularly in a secure wallet and avoid lending them out or leaving them out in plain sight (on a restaurant table or bar, for example), where practiced criminals could memorize their details with just a glance. Keep cards you don’t use regularly in a spot that’s secure, but where you’ll notice if they go missing.
• Use contactless payments when possible: Systems that let you pay with your smartphone or by tapping with your card are more secure and far less susceptible to skimming than those that require swiping or “dipping” your card.
• Guard your PIN: Credit card cash advances often require use of a four-digit PIN, and lack of that code could thwart a thief who’s stolen or cloned your card. So, just as you should with a debit card PIN, take care to conceal the keypad when you enter a credit card PIN, to prevent detection via hidden camera or “shoulder surfing.”
• Don’t store card numbers online: At online checkouts, decline the offers to save card info for future use. Sure, it’s a hassle to type in your card number each time you shop, but it’s less painful than dealing with credit card fraud if your information is stolen.
• Report and replace missing cards immediately: Unless you know the whereabouts of a missing card and are certain you can retrieve it quickly (in which case you should lock the card), err on the side of caution: Report the card missing and request a replacement. Many card issuers offer free next-day delivery on replacement cards, and others can expedite shipping for a fee.

The Bottom Line

The possibility of fraud is a side effect of credit card convenience. Keeping watch on your cards, account statements, and credit reports can help you detect fraud quickly and nip fraud in the bud. For an extra measure of vigilance, consider enrolling in free credit monitoring from Experian, which alerts you instantly when a new credit application or account is recorded on your Experian credit report.

For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan salespersons. We are committed to providing you with the best service and ensuring your financial security.

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