What is credit card fraud, and how do you report it?

What is credit card fraud?

Simply put, credit card fraud is a form of identity theft in which malicious actors steal credit card information to commit carding attacks, charge purchases to the account, or remove funds. In some cases, the perpetrators can commit the crime even without your card, making credit card fraud one of the most popular types of identity theft.

Credit card fraud are also dangerous because they can take a while to notice, exposing victims to serious financial losses. However, the good thing is that if you fall victim to this type of crime, the damage may be limited if you take appropriate action.

How does credit card fraud work?

Credit card fraud happens when malicious actors gain access to credit card information. Perpetrators can obtain this information physically (by stealing or finding your lost card), online (using phishing attacks), or via a rigged ATM. After receiving the information, the thieves may commit card testing fraud to ensure the card is still operational. If testing proves successful, the scammers continue exploiting the victim’s funds.

Types of credit card fraud

The types of credit card fraud depend on how the fraudsters obtain the card’s information. Typically, they include card-not-present fraud, credit card skimming, credit card application fraud, account takeover, and lost (or stolen) card fraud.

• Card-not-present (CNP) fraud. This type of fraud does not require the criminal to have access to a physical credit card. Scammers can use the information obtained through phishing attacks or data breaches to make phone and online purchases. Since no physical card is required during these transactions, merchants cannot verify users’ identity, making CNP difficult to prevent.
• Credit card skimming. Skimming (or card cloning) refers to rigging ATMs with special devices called credit card skimmers. Scammers attach skimmers to the ATM card reader slot, which scans your card’s magnetic strip when you use the ATM. A skimmer reads your card’s information and sends it to the fraudster, virtually stealing the card and all its information.
• Credit card application fraud. Once scammers steal personal info, they can use it to apply for credit cards. This process can go unnoticed until the original credit card user files for a new credit card or checks their credit report. While technically the victims are not responsible for fraudulent purchases, this type of fraud can damage their credit score.
• Account takeover. Like credit card application fraud, account takeovers happen when scammers use stolen personal information to change account passwords and PIN codes. While victims are often quick to notice this type of fraud, they can still suffer significant financial loss.
• Lost or stolen card fraud. As the name suggests, this type of fraud occurs when malicious actors steal or find lost credit cards. Credit card theft can include something as simple and old-fashioned as getting your wallet stolen or thieves intercepting your credit card sent through the mail.

How to detect credit card fraud

Credit card fraud detection can be difficult because scammers are careful to avoid alerting you. However, certain indications can help you recognize the signs of credit card fraud. So, what are the red flags of credit card fraud?

• Suspicious and unfamiliar transactions on your credit card statement.
• Small account charges (perpetrators may make these small charges to remain under the radar).
• Blocked access to your bank account.
• Unexpected and unauthorized changes in your credit report (for example, new credit card accounts and address changes).
• Surprise calls from creditors, collection agencies, and credit card companies.

How to prevent credit card fraud

While it’s impossible to completely safeguard yourself from credit card fraud, you can take simple steps to limit the risk of becoming a victim and improve your credit card safety.

• Review your credit card statements. Keep an eye on your monthly credit card statements. Doing so will help you notice suspicious payments and unauthorized purchases. Thoroughly reviewing your annual credit card report can also help you prevent credit card fraud.
• Keep your account info hidden. Put pin codes, passwords, and account numbers in a secure location. For increased safety, consider storing your credit card information online and using trusted digital tools (such as password managers or digital lockers).
• Use a document shredder. Cybercriminals sometimes find sensitive information (such as old documents and financial statements) while dumpster diving. Before getting rid of old documents, be sure to shred or otherwise destroy them.
• Carry only the necessary cards. People often tend to carry all their credit cards in one place, even if some of them are unnecessary at a given time. To reduce the risk of credit card fraud in the case of a stolen wallet, consider carrying only the most-used cards and keep them separately from your wallet (for example, in a special card keeper).
• Be wary of phone scams and phishing attacks. Scammers may try to get your data via fraudulent “credit card operator” calls or messages urging you to click on suspicious links. Avoid providing your credit card number to unknown callers and clicking on shady links.
• Go digital. Don’t use sticky notes to write down your passwords and PINs. Additionally, sign up for online statements from your credit card provider. These steps will make it harder for scammers to obtain your financial information and will help you notice unauthorized charges quicker.
• Report lost cards and suspicious activity immediately. Even if you notice a minor concern, it’s better to report it and consult with your credit card company instead of suffering the consequences later.
• Consider using transaction alerts. Services use credit card authorization to verify your payments. Turn on transaction alerts to monitor every transfer and purchase, allowing you to quickly notice suspicious activity.
• Choose cards that offer a zero-liability policy for fraudulent charges. Many credit card companies offer cards with no penalties for unauthorized charges, which can be a great safeguard in case of credit card fraud.
• Avoid using public Wi-Fi for transactions. Public Wi-Fi hotspots are often unsecured and can be hijacked by malicious actors (by using man-in-the-middle attacks). If you use an unsecure network to transfer money or share other sensitive information, cybercriminals can intercept it, potentially exposing you to credit card fraud and BIN attacks. Avoid using public Wi-Fi hotspots, and use a VPN to encrypt your internet connection.
• Invest in cybersecurity measures. Using a VPN, a password manager, digital lockers, and other cybersecurity tools can significantly reduce the risk of credit card fraud, and cyberattacks.

How to report credit card fraud

What should you do if you become a victim of credit card fraud? First, confirm that the charges are fraudulent. A good way to do so is to review your purchases and credit statements and contact your credit card company. The company can then start its investigation, freezing the card payments and limiting further damage (most card providers also allow their users to freeze card payments by themselves).

In addition, you should set up a credit card fraud alert after reporting potential fraud to the credit card provider. This measure informs creditors about potential crime, informing them to take extra steps to verify your identity before extending credit. Such measure puts up additional barriers for scammers, denying them opportunities to change your account details or set up new credit accounts with your personal information. You can quickly set up the alert by contacting any of the three major credit bureaus (in the US).

Finally, contacting the Federal Trade Commission (FTC) can further help you limit potential damage. Filing a report through the FTC can assist law enforcement in investigating and recovering your lost funds. Additionally, the FTC may offer extra support and resources in case of significant financial loss.

When it comes to credit card fraud, speed is of the essence. Therefore, act quickly and decisively if you notice reasonable evidence to suggest you’ve fallen victim to this scam.

FAQ

Is credit card fraud considered identity theft?

Yes, credit card fraud is considered identity theft because scammers use the victim’s personal information to steal money or make purchases.

Am I liable for fraudulent charges made to my card?

You are not liable for fraudulent charges made while using your card if you report them promptly. However, even with most credit card companies offering zero-liability packages, you should carefully check the issuer’s terms and policies for additional conditions and effects on your credit score.

Can credit card fraud affect credit scores?

In short, no, although there are exceptions. Failing to report credit card fraud promptly can negatively affect credit card scores (due to missed payments or maxed-out cards). However, if you act the moment you notice any suspicious activity, you should not experience any changes to your credit score.

How is credit card fraud investigated?

Upon receiving your report, the credit card company will investigate its legitimacy. If it finds reasonable evidence of credit card fraud, it will pass the investigation on to law enforcement to continue the search for the culprit. In cases of significant fraud or organized crime, various government agencies can get involved.

Is credit card fraud a felony?

Some types of credit card fraud can be classified as felonies, depending on severity, federal law, and amounts of money stolen. In some states, perpetrators of felony credit card fraud can face huge fines and up to 10 years in prison.

What is the biggest example of credit card fraud in history?

In 2013, the US Attorney’s office charged 18 people with what is now known as one of the biggest credit card thefts in history. The perpetrators were part of a $200 million international credit card fraud scam, using over 7,000 fake identities to obtain tens of thousands of credit cards.