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What Is Credit Card Fraud and How to Avoid It

Credit cards are an incredibly convenient tool, and can be particularly beneficial when they come with rewards. However, their convenience and common usage comes with the inevitability of credit card fraud. Thieves have become creative with stealing credit card and personal information to create a financial disaster. Here’s what credit card fraud looks like and how you can prevent it from happening to you.

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What Is Credit Card Fraud?

Credit card fraud, also know as credit fraud, broadly describes the theft of credit or banking information. Thieves use the information to make fraudulent transactions or obtain funds that do not belong to them. Though the term only names credit cards, it includes fraudulent debit card usage, as well.

Unfortunately, credit card fraud isn’t as uncommon as you may think. This is increasingly true due to the rise of transactions where your card is not present, like online or phone purchases. Committing credit card fraud comes in many different shapes and forms. The most common occurrence happens when a thief steals card information to make fake accounts or dishonest purchases. You can commit credit card fraud by purchasing or selling goods with a card you know has no funds attached or was illegally obtained.

How Does Credit Card Fraud Occur?

What Is Credit Card Fraud and How to Avoid It

Stealing someone’s credit card or using someone’s lost card is one example of credit card fraud. Criminals even steal credit cards from your mailbox. They use these intercepted cards to make unauthorized purchases. If thieves gather enough personal information, they could also create a counterfeit card. Sometimes all it takes is a thief with your card number and expiration date for your money to be in serious danger.

You could make yourself vulnerable to credit card fraud by making purchases from a suspicious seller. When making in-person purchases, try not to leave your card in the hands of a stranger for an extended period of time. You never know if they have dishonest intentions, thus putting your card at risk. Thieves can easily write down your credit card number. There is also a technology called skimming that can store your card information with just one swipe. That information is then open to fraudulent usage.

Card-not-present purchases refer to online or phone purchases since you don’t really need the physical card. It might be best to avoid these transactions, but that’s not always possible. If the purchase is necessary, deal only with sellers you trust. Sensitive information like your credit card number and billing address are valuable to frauds. Being careless with that can lead to negative consequences.

Advances in technology have also given rise to phishing scams. Fraudsters trick targeted users into entering sensitive information or passwords into a fake field. You may think you’re entering your information on your electricity provider’s website, for example. But in reality, you’re giving the information to frauds. You should also be wary of emails and downloadable programs from the internet. Hackers can set up emails and websites that look professional and trustworthy. However, sometimes simply clicking a link on these fake sites can install malware or viruses and put your information at risk.

Another kind of credit card fraud is account takeover. This is when criminals gain access to your existing credit card account. They do this by obtaining your personal information or if your password isn’t secure enough. Once the thief has access to your account, they can withdraw money, change your account settings and more all for their personal gain. Some thieves even go so far as to change your addresses and then report your credit cards as lost in an attempt to receive a new one. If they succeed, your own card won’t work and they can use your funds as they please.

One of the most extreme cases associated with credit card fraud is identity theft. This is when criminals use your personal information to open new bank accounts or credit cards. In this manner, they get to use the account and place fraudulent charges on it, all while posing as you. Being a victim of identity theft can be hard to recover from, due to the large scale of the crime. However, there are steps to protect against this, such as requiring references and copies of identification when opening a new account. Many credit card companies will also work with you to recover should you fall victim to identity theft.

How to Avoid Credit Card Fraud

Besides protecting your money and assets, taking steps to avoid credit card fraud will be well worth it for some peace of mind. It is hard to prevent credit card fraud entirely, but you shouldn’t be passive about it. The key is to catch fraudulent activity immediately to limit the damage.

For one, do your best to keep track of your cards, purchases and bank statements. That way, you can catch any unusual activity quickly. If you notice anything amiss, or you lose a card, call your issuer immediately. The faster you report it, the more quickly it can be taken care of. It also helps to rip up your bank statements before tossing them in the trash once you’re done with them. This helps protect any personal information printed onto the papers.

When applying for credit or debit cards, you’ll want a card with security protections. For example, most cards should have EMV chip technology, also known as the chip. This provides more security by authenticating the card and protecting information. Information on magnetic swipe cards can easily be copied with card reading devices, like skimmers. The switch to the chip combats this.

You can also prevent serious credit card fraud by setting up fraud alerts on your credit report. Fraud alerts notify anyone requesting your credit report, like loan lenders or credit card issuers, that you may be a victim of fraud or identity theft. The alerts will help in case someone tries to open an account under your name or change existing information. The requesting agency will then know to take extra steps to authorize the new request. If they can’t confirm that the request is legitimate, they will not continue with it.

Avoiding Credit Card Fraud Online

What Is Credit Card Fraud and How to Avoid It

Technology is a blessing, but when it comes to hackers and thieves, it can also be a curse. You should always confirm that sites are legitimate, secure and match what you’re looking for. Downloading a trustworthy antivirus program helps protect your information and devices. Do not provide your personal information to suspicious websites or unknown callers. Most banks are aware of phishing schemes and will not ask for your bank information through an e-mail or phone call. So if you receive something of that nature, don’t trust it even if your bank’s logo is in the email.

When it comes to making purchases, especially online or over the phone, buy from safe and trusted sellers. Even if you trust an online seller, you may still want to be careful about saving your payment information. This feature makes for a faster checkout, it’s true. However, if that online account or website is compromised, it can mean a hit to your wallet. In addition, create online accounts with unique, secure and hard to guess passwords. Changing them frequently can add continual protection.

It also may be safer to pay with your credit card, rather than your debit card. The Fair Credit Billing Act (FCBA) places your maximum liability for fraudulent credit card transactions at $50. Some cards even promise zero liability. Because the funds are taken out of the bank’s account first, your own funds likely won’t get hit with a fraudulent transaction if reported. You will still want to check your credit card statements to catch any fraudulent activity. That way, you won’t have to repay your issuer for a purchase you didn’t actually make. Just make sure you report it within 60 days and that you follow up with your creditors.

Contrary to the FCBA, which applies only to credit cards, the Electronic Funds Transfer Act (EFTA) applies only to debit cards. The longer you wait to report fraudulent activity, the more money you end up liable for. You have up to 60 days to report fraudulent activity or a stolen debit card. After that, the bank won’t be liable and you risk losing your money. Because of this, credit cards may provide a more protected option.

What Do I Do if I Encounter Credit Card Fraud?

If you suspect that your card information has been stolen, immediately call the issuing bank to put a hold on the card. This prevents any further usage. They can also remove any fraudulent charges, freeze your account and send you a new card. Generally, you have up to 60 days to report fraud to guarantee some sort of legal protection. The sooner you make a credit card dispute, the less financial burden you will endure. Frequently checking your account statements will definitely help.

Most banks track all of your card activity, so they can see any suspicious activity like unusual purchases or those made outside your area. If a bank sees this kind of activity, they often let you know about the transaction. You may already be familiar with these kind of alerts. If this occurs, they will usually check with you if you made that purchase or authorization. If you didn’t, they can immediately put a freeze on your card and send you a new one.

Sometimes, you’re surprised entirely with a notification about a new account opening in your name. If you didn’t open it yourself, then your identity may have been stolen. Contact your bank immediately to close the fraudulent accounts. Plus, see what kind of additional security measures you can add to your existing accounts.

Again, you’ll want to contact the major credit bureaus Equifax, Experian and TransUnion to place a fraud alert on your credit report. This will prevent any future fraud attempts from going too far. You may also want to file a police report for a stolen identity. That way, the crime will be on record.

Bottom Line

Credit card fraud isn’t completely unavoidable. However, many banks and creditors do have security measures in place to catch fraud as quickly as possible. There are a number of steps you can take to protect yourself from the harm fraud can cause, too. Simple things like tracking your statements and installing antivirus software can save you from a potential financial meltdown. It’s better to be safe and overcautious than sorry.

Photo credit: ©iStock.com/Gphotography, ©iStock.com/welcomia, ©iStock.com/ridvan_celik

Emily Zhu Emily Zhu writes on a variety of personal finance topics for SmartAsset. Her expertise includes retirement, credit cards, taxes and banking. She grew up in Brooklyn, but now splits her between Brooklyn and Rochester. Emily is currently studying at the University of Rochester.
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