Credit Card Fraud: How to Protect Yourself
Sadly, credit card fraud is booming.
In 2019, the Federal Trade Commission in the US received more than 271,000 reports from people claiming their existing credit card account had been messed with by scammers or a new one had been opened in their name.
With credit card fraud so on trend, it’s important to arm yourself with as much knowledge as possible to help you bank securely and prevent this kind of financial crime from happening. Let’s find out what you need to do in case you notice signs of fraud on your credit card. Moreover, we’ll discuss how you can best protect yourself from this financial crime and prevent it happening in the first place.
What is credit card fraud?
Credit card fraud is when someone uses your credit or debit card to covertly make payments, buy goods, or steal cash.
Credit card fraud is one of many types of financial fraud, including tax refund fraud, social security fraud, health insurance fraud and more.
Follow our guide on identity theft protection to find out more on how to avoid these financial scams.
How does credit card fraud happen?
Criminals can take advantage of your credit in different ways.
In a nutshell, they either use a stolen credit card or merely enter the relevant card information to achieve their goals.
Here are the four most common types of crimes involving credit cards:
1. Application fraud
This usually happens in connection with identity theft. A person gathers a lot of information about you - specifically, the personal information needed to apply for a credit card - then receives a card in your name to use for their own gain. On billing day, the company may charge you for any transactions, unaware it was actually a criminal who used the card in your name.
2. Credit card skimming
Criminals may illegally install credit card readers inside ATMs. Other times, they may have a handy device to help them read information stored in your card. They just need to be physically near you to allow the reader to capture the information. This is called credit card skimming. Once they have your details, they can easily clone your card. They do this by uploading your credit card data to a blank card, then using this as if it were the original.
3. Credit card theft
This is the most obvious way of committing credit card fraud. If someone steals your credit card or finds one you’ve lost, they can use it to make purchases or other transactions, either in person or online. This usually takes place until you notify the issuing company and it blocks the card.
4. Card-not-present fraud
Can criminals steal from you even if they don’t have your physical card? Yes they can (and they will).
They only have to know your credit card number and card verification code to use it for online transactions. This is called card-not-present fraud. Often, data breaches at major retailers allow criminals to get hold of millions of card records at once.
Did you know? With Clario, you can immediately find out if your accounts have been compromised in a data breach. This way, you can act quickly to prevent identity theft and any unauthorized access to your bank accounts.
How to report credit card fraud?
Now, if you fell victim to any of the illegal tricks mentioned above, you may start to notice suspicious activities in your credit card account.
Don’t panic; instead, take back control by following these steps:
1. Notify your credit card company
If you’ve lost your card or discovered fraudulent charges, you must call your credit card company immediately and inform them. They’ll cancel the card right away and set up an alert so you’ll be notified if these pesky criminals try to use it again.
2. File a police report or an identity theft report
If you want to press charges against the fraudster, then you have to involve the police. This often happens in cases when a large amount of money is stolen. In some situations, you may even have to solicit legal advice on what to do next.
These police reports can help protect you from the potentially negative consequences of fraudulent transactions. They are especially important when a company’s credit card has been compromised or in situations when illegal items have been purchased.
Alternatively, if you see signs of someone impersonating you while using your credit card or applying for one, report this identity theft through the FTC’s dedicated website, IdentityTheft.gov. The FTC Identity Theft Report will help you prove you didn’t make any of the fraudulent purchases.
3. Set up a fraud alert
Report the issue to the main credit reporting agencies in your state or country. By setting up a fraud alert, you also get notified if criminals continue to attempt to use your card.
Don’t forget to file a dispute and get the fraudulent charges removed from your credit report. This can help ensure your credit score doesn’t take a dive, affecting your future ability to file for loans or mortgages.
4. Check your accounts with ecommerce sites
Any online accounts where your credit card details are saved are easily compromised.
Were there illegal transactions made? Contact the website’s support team or administrator to report the fraudulent charges.
5. Change your online passwords
If you experience any kind of data breach or if your identity has been compromised in any shape or form, the first thing you have to do is change all your online passwords.
Why? Well, your compromised account may well be linked to other online accounts. Say, for example, your email address was hacked. This email address may be connected to your online bank account or social media profiles. The fraudster may have gotten into all these already but it’s still important to change the passwords as soon as possible just in case.
6. Keep a close eye on your statements and credit reports
The sooner you catch unusual activities on your account, the lesser the damage. Nip it in the bud as soon as possible. Different banks may have different processes around recovering any stolen money but you need to be sure you have justification or evidence you were not personally responsible for any fraudulent transactions.
For example, you could prove you were in another country during the time of a fraudulent in-person transaction. Or, you don’t have an account with the website where your credit card has been used.
Note: It’s important to remember to never ignore any signs of potentially fraudulent activity, regardless of how small the amounts involved. This is because most credit card fraudsters initially test the waters by trying to transact with small amounts before buying expensive items. Report credit card fraud as described above as soon as you notice any suspicious activity.
How to prevent credit card fraud?
There is never a guarantee you can avoid becoming a victim of fraud. However, you can take these steps to safeguard yourself against possible attempts:
1. Protect your identity to prevent any thefts that could potentially lead to fraud.
2. Regularly check your financial statements. This way, you’ll be able to quickly spot irregular or unauthorized transactions.
3. Be more mindful where you use your credit cards. Make sure you only use them with legitimate websites or institutions.
4. Be on the alert for phishing scams. These are websites or emails trying to trick you into giving up your credit card details.
5. Give your credit card company a heads up when you plan on traveling (and not just so they don’t freeze your account). This way, they can immediately flag if any suspicious transactions occur in unusual locations.
6. Set a reasonable credit limit for your needs. If you find you don’t spend a large amount of money on a monthly basis, then ask your credit card company to reduce your credit limit. This way, if hackers ever get a hold of your card, they won’t be able to make large purchases.
7. Always use a security tool like Clario when shopping online. Be sure you are protected from malicious websites and other threats.
8. Consider getting software such as Clario to alert you when your personal information is used to help you recover any money lost from credit card fraud.
Questions and answers about credit card fraud
Here are some of the most frequently asked questions about credit card fraud:
Am I responsible for fraudulent charges on my credit card?
According to the FTC, under the Fair Credit Billing Act, the maximum amount you have to pay for any unauthorized use of your credit card is $50. Moreover, if you report the card theft or loss before it is used, you are not liable for any credit card fraud charges at all. If your credit card number (but not the card) is stolen, you are again not responsible for any unauthorized use.
Still, remember that some banks may ask you to pay the monthly or annual usage fee for the credit card. Be sure to check with your credit card provider for their policies about credit card fraud as many are slightly different
How serious is credit card frauds punishment?
In the US, criminal offences are broadly classified into two categories: felonies and misdemeanors. A misdemeanor is anything that can land you up to 12 months in jail. A felony is more serious than a misdemeanor with a respective jail sentence generally longer than one year.
So, is credit card fraud considered a felony or misdemeanor? This may actually depend on how much was stolen. Several states in the US would classify a crime as a misdemeanor if the amount stolen does not pass a certain limit, typically between $500 and $1,000. If it does, then it would be a felony. Felonies are punishable by a fine of up to $25,000 and as much as 15 years in prison.
Is credit card fraud considered a form of identity theft?
Credit card fraud is a form of identity theft because another person is impersonating you by using your personal data. This person could only apply for a credit card under your name by having your personal information in the first place!
How often do credit card frauds get caught?
According to the United States Sentencing Commission, in fiscal year 2018, 599 credit card fraud offenders were sentenced. 89.3% of these offenders were punished by imprisonment with an average sentence of 30 months.
Do banks investigate credit card fraud?
Your worst fear realised - the bank may blame you to get out of paying back what you’ve lost. That’s not really how they operate though - most banks have protocols in place to deal with credit card fraud.
Different banks have different resolution or waiting periods and this can also depend on the gravity of the situation. Always remember to ask for a ticket number or reference number for your case so you can follow up with your bank.
How do credit card companies catch fraud?
Credit card companies may flag transactions, especially if they’re not reflective of your usual shopping habits. For example, if you’re known to only use your credit card for small purchases but then one day you have made a larger purchase. So if you usually just use your credit card to buy groceries and the next day you’re buying a yacht. This erratic behaviour can raise the suspicions of your credit card provider.
Another dead giveaway is location. If you live in Asia but your card was suddenly used in the US without prior travel advisory, this may mean someone else is trying to use your card.
Any other transaction that doesn’t adhere to your usual lifestyle or habits can be flagged by your company. Usually, they send you a message about the card use, then you can reply Yes or No as to whether you authorized the transaction.
Another way to verify larger transactions is by two-factor verification. If a transaction is performed online, then a seller may send you a code to your phone. This usually expires within minutes and you need to encode this to finalize a transaction. If the hacker has your card details but not your phone, then of course they wouldn’t be able to push through with the order.
How does credit card fraud detection work?
As previously mentioned, banks and credit card companies have systems in place analysing customer data. They try to recognize the behavioral patterns and spending profiles of their clients. If anything seems out of the ordinary, they inform customers right away.
And believe us when we say they do invest in the technology and infrastructure to detect irregular transactions. According to Forbes, merchants lose about $190 billion every year due to fraudulent transactions.
They also try to notice the behavioural patterns of fraudsters such as attempting to make a small purchase before a bigger one. These kinds of patterns raise a red flag and help alert the system immediately.
We hope we haven’t scared you too much about the grim reality of credit card fraud and you still have some faith in the good of humanity. Believe us, there are still great people out there.
While there are criminals always trying to trick honest people like you and me, there are plenty of organizations fighting to stop these scammers. At Clario, our easy-to-use online security products educate users about potentially dangerous websites to protect them from online scams.
This means you don’t have to live online always looking over your shoulder. With Clario, you can live your digital life freely and securely!