Updated: September 2, 2024
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Although credit cards are useful tools that help you build credit, they also come with significant risks like credit card fraud. This type of fraud occurs when someone unauthorized uses your card or its details to make transactions.
Understanding how credit card fraud happens, knowing preventive measures and being prepared to respond effectively can greatly reduce your vulnerability and allow you to enjoy the benefits that credit cards offer with greater peace of mind.
Credit card fraud is a form of identity theft involving an unauthorized taking of another's credit card information to charge purchases to the account or remove funds from it. According to the Consumer Sentinel Network Annual Data Book, there were 2,566,261 fraud reports in 2023, with 471,488 (18%) related to payment methods. Credit cards were the most frequently reported, with 114,348 instances resulting in a total loss of $246 million.
Credit card fraud generally occurs in two primary ways:
While the adoption of EMV (Europay, MasterCard and Visa) “chip” cards has mitigated some common forms of in-store fraud such as skimming, you need to remain vigilant as other forms of credit card fraud continue to evolve and can affect anyone. Here are some simple preventive measures you can practice regularly to reduce your risk and enhance your ability to fully enjoy the benefits of your credit cards.
Regularly Update Your Passwords
Make it a habit to change your passwords regularly, ensuring each is unique and complex. Create a strong password by combining letters, numbers and symbols and avoid common words or obvious choices like birthdays.
Avoid Public Wi-Fi for Credit Card Transactions
Public Wi-Fi networks frequently lack adequate security protections, which can expose you to hackers. To protect your financial information, avoid accessing your credit card accounts or making purchases on these networks. Use a virtual private network (VPN) if you need public Wi-Fi. A VPN can enhance public Wi-Fi security by encrypting your internet connection.
Keep Your Physical Card Secure
Always store your credit card in a secure place, such as a wallet that you keep close to you. Avoid letting your card out of sight, especially in public places like restaurants. When sharing your card information over the phone, ensure you initiate the call to a trusted source. Opt for contactless payments whenever possible, as they provide enhanced security against skimming by minimizing the card's physical handling.
Be Cautious With Stored Card Information
Decline the option to save your credit card information at online checkouts. While entering your card number each time may be less convenient, it reduces the chances of your information being compromised if the website is hacked.
Register for Paperless Statements
Switching to paperless statements minimizes the risk of your sensitive information being intercepted in the mail or found in your trash. Make sure to shred any documents that contain personal information before disposing of them.
Regularly Check Your Credit Report
Monitor your credit report regularly to spot any unauthorized activity or discrepancies that might indicate identity theft. You can obtain a free credit report annually from each of the three major credit bureaus — Equifax, Experian and TransUnion — at AnnualCreditReport.com.
Personal information encompasses any data that can identify you as an individual. It includes details that could allow someone to hack your credit card or steal your identity. Don't set yourself up to become a fraud victim by sharing this sensitive information. Here's a list of personal information that you should always keep private:
Don't give away this information to strangers, including websites and people who email, text or call you.
One of the best ways to identify credit card fraud is to recognize when someone else is impersonating you or using your credit card details without your permission. Here are key indicators and steps to help you recognize credit card fraud:
A sudden increase in your balance, especially without significant purchases, might indicate fraudulent activity. Also, pay close attention to small charges — fraudsters often make minor purchases as a test before committing larger frauds. Regularly review your credit card statements to catch any unfamiliar charges early.
Receiving a notification about a new credit card or loan account opened in your name can be a red flag for identity theft. Immediately report this to the issuer and credit bureaus to prevent further misuse.
An unexpected credit card decline or an unexplained reduction in your credit limit can signify that your account may have been compromised. Contact your issuer directly to investigate and resolve the issue.
Not receiving your credit card statements as expected can suggest unauthorized changes to your account, such as an altered billing address. Contact your card issuer immediately to verify your details and inspect your recent account statements online for any signs of unauthorized transactions.
Receiving calls or letters from debt collectors about unknown accounts strongly indicates identity theft. Immediately notify the relevant financial institutions including your bank, credit card issuer or any other entities where you have financial accounts and check your credit report for unauthorized activities.
Any sudden, unexplained drop in your credit score could be a symptom of fraudulent activity. Regularly monitor your credit report for any new accounts or delinquent payments you did not authorize and take appropriate actions.
Credit card fraud can happen in various ways, ranging from simple methods like skimming, where thieves steal card data during a transaction, to complex schemes that combine multiple fraudulent activities, such as phishing and malware. Below are some of the most common ways fraudsters steal your information and strategies to help you protect yourself.
Online theft of your credit card information can occur in various ways. Here are some common methods thieves use and how to avoid being a target:
Credit Card Fraud Type | Description | How to Avoid |
|---|---|---|
Phishing Scams | Fraudsters send emails, texts or messages posing as legitimate institutions to trick people into giving their credit card details. | Never click on links or provide personal information through unverified communications. Verify the sender's identity through official channels. |
Fake E-Commerce Websites | Scammers create counterfeit online stores to steal credit card information, often luring customers with low prices and urgent sales. | Shop with well-known retailers, confirm site security by looking for "https" in the URL and check customer reviews through resources like the Better Business Bureau (BBB). |
Data Breaches | Unauthorized access to data systems where credit card information is stored, typically from e-commerce sites or payment processors. | Use strong, unique passwords for each online account, enable two-factor authentication and consider virtual credit cards for online purchases. |
Account Takeovers | Fraudsters gain access to online credit card accounts using stolen login credentials to make unauthorized transactions. | |
Malware and Spyware | Malicious software designed to infiltrate devices and steal sensitive information like credit card numbers. | Avoid clicking on suspicious links or downloading software from untrusted sources. Keep antivirus software updated and consider using a firewall. |
Virtual criminals aren't the only ones you have to worry about. Consider these types of offline credit card fraud and how to defend yourself against them:
Credit Card Fraud Type | Description | How to Avoid |
|---|---|---|
Skimming and ATM Cameras | Thieves attach devices to ATMs or payment terminals to capture card information during transactions. Hidden cameras may also be used to record your PIN. | Inspect ATMs and payment terminals before use, avoid machines that look tampered with and use contactless payments when possible. Always shield your PIN entry. |
Card Not Present (CNP) Fraud | Fraud occurs when your credit card details are used for purchases without needing the physical card, typically over the phone or through mail orders. | Be cautious when sharing your credit card information over the phone or through mail and only deal with reputable companies. Consider cards with advanced fraud protection. |
Lost or Stolen Cards | Unauthorized purchases can follow if your card is lost or stolen. | Keep your card secure, report it immediately if lost or stolen and use mobile app features to lock your card. |
Mail Theft | Thieves steal credit card statements or new cards from your mailbox. | Opt for paperless statements, track your mail carefully and use a locked mailbox or mail-holding service if away from home. |
Friendly Fraud | Also known as chargeback fraud, it occurs when someone you know uses your card without permission and disputes the charges. | Keep your credit card information private, even from those you trust, and regularly monitor your statements. |
Phone Phishing | Fraudsters use phone calls or texts to trick you into providing personal information by impersonating legitimate services. | Never provide personal information during unsolicited calls or texts. If necessary, hang up and contact the company directly through a verified number. |
When you discover that you've been a victim of credit card fraud, the first step is to check with any secondary card members or authorized users to see if they recognize the transaction. If not, contact your credit card issuer immediately to report the suspected fraud and discuss the next steps, which typically involve locking or closing your account to prevent further unauthorized activity. Below are essential steps to follow when responding to credit card fraud and recovering from identity theft.
Immediately contact your credit card issuer once you detect unauthorized transactions. Most issuers provide 24/7 customer service specifically for reporting fraud. They will likely freeze your account to stop further charges and issue a replacement card with a new number.
Utilize the FTC's resources for victims of identity theft, including credit card fraud, by filing a report at IdentityTheft.gov. This platform will assist you in creating a recovery plan and the report can serve as evidence of fraud when interacting with creditors and other institutions.
Notify the three major credit bureaus of fraud and place a fraud alert on your credit report. This alert requires creditors to take extra verification steps before opening new accounts in your name, enhancing your protection against identity theft.
Collaborate with your credit card issuer to challenge any unauthorized charges. According to the Fair Credit Billing Act (FCBA), you're typically not responsible for more than $50 of fraudulent charges. Many issuers also offer zero-liability policies covering unauthorized transactions, ensuring you are not out of pocket for fraud. Document all communications with your issuer to ensure the charges are disputed and removed.
While it might not always be necessary, reporting the fraud to local law enforcement can be useful, particularly if the fraud is part of a larger case of identity theft. Some creditors may require a police report as part of their fraud investigation process.
A credit freeze effectively locks down access to your credit reports, preventing potential identity thieves from opening new accounts in your name. It's important to note, however, that while a freeze is in place, lenders and creditors will not be able to access your credit report. This can affect your ability to secure loans or credit during the freeze period, as potential lenders will be unable to evaluate your creditworthiness. If you're planning to apply for a loan, you might need to temporarily lift the freeze.
Here are some commonly asked questions and answers to help you better understand and prevent credit card fraud.
Phishing scams are generally considered the most common type of credit card fraud. In these scams, fraudsters use fake emails, texts or websites to impersonate legitimate institutions and trick individuals into providing their credit card information. This method is widespread due to its ease of execution and ability to quickly target large numbers of people.
Most credit card companies offer zero liability policies, ensuring you are not held responsible for fraudulent transactions. It's important to report any unauthorized transactions promptly to ensure you are covered under these protections.
After reporting fraud, your credit card issuer will typically deactivate your current card, begin an investigation into the fraudulent transactions and issue a new card with a different account number. It's important to destroy any associated cards and checks while the investigation is underway.
The resolution process for a fraud claim can vary but generally takes up to 90 days. During this time, your credit card issuer may require additional information from you to aid in their investigation.
Phishing attempts often involve communications that urge you to act quickly, ask for personal or financial information and create a sense of urgency or fear. Always be cautious of emails or messages that ask you to click on unfamiliar links or provide sensitive information.
For businesses, implementing robust security measures such as EMV chip technology, address verification services and advanced fraud detection tools like machine learning can significantly reduce the risk of credit card fraud. Regular employee training on detecting and responding to suspicious activities can also fortify your business against potential fraudsters.
MoneyGeek consulted experts to gain insights on cybercrime and credit card scams. They discussed the trends, warning signs, vulnerable groups and prevention strategies. Here are their expert responses to key questions in this field.
Below is a list of resources that provide additional information on credit card usage, consumer rights and fraud prevention to help you safeguard your finances while using credit cards.
About Nathan Paulus
Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.
Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.
