Credit cards can help users build credit, earn rewards and afford expenses they can't pay for upfront. Unfortunately, credit cards also come with the risk of credit card fraud.
Credit card fraud is a serious criminal issue, often occurring when a thief steals a credit card number and makes unauthorized charges or signs up for credit cards in someone else's name. The best way to avoid becoming a victim of fraud, credit card or otherwise, is to remain vigilant. Knowing the types and signs of credit card fraud and how to prevent it can make all the difference.
This guide will cover the common types of credit card fraud, how to report it, how to prevent it and more.
Common types of credit card fraud
There are many ways that credit card thieves make use of your information for their illegal gains, but a few types of fraud are more common than others.
Card-not-present (CNP) fraud is a type of credit card theft wherein the perpetrator doesn't have your physical card. Instead, they gain access to the card information through online payment sites or data breaches. The card remains securely in your possession the entire time. The criminal may use your credit card number to make purchases online or over the phone, where they don’t have to show the physical card.
According to the National Association of Federally-Insured Credit Unions (NAFCU), most instances of credit card fraud in recent years have been some version of CNP fraud, especially with the increase in online payments.
Lost or stolen credit cards
Even though CNP fraud rates are increasing, that doesn't mean you can be negligent about your physical cards. Staying aware of your card's location at all times is still a great way to prevent credit card fraud.
A credit card thief could steal a card from your pocket or purse, or they could find it lying on the ground after you've mistakenly dropped it. Once they have it, they can immediately start making fraudulent credit card purchases. Many merchants now rely on payment processing tools that don't require identity verification, making it easy for anyone to put charges on a stolen card.
Fraudulent credit card applications
Bad actors can impersonate you, signing up for credit cards in your name and using them, leaving you with debt. This is called a fraudulent credit card application.
Credit thieves can intercept your mail or online login information, steal your personal information — like your address, Social Security number or birthdate — and then use those details to fill out applications for credit cards. The thief gains access to a new credit card in your name and can make fraudulent charges. Unfortunately, you may not be aware of this until you receive the bill. However, signing up for credit alerts and monitoring can help you detect new accounts opened in your name.
Credit card skimming
Credit card skimming occurs when you conduct a seemingly ordinary transaction, unaware that a bad actor is secretly collecting your information. For example, you might hand your card to a taxi driver or bartender to pay for services rendered, and while the card is out of your sight, they — or anyone else who has access to it — may copy your information for later use.
Another common skimming scenario occurs at card-swiping sites or ATMs, where thieves can install devices that read card information and PINs. When they have this information, they can use your lines of credit. Skimming like this most commonly happens at ATMs and gas stations.
How to report credit card fraud
If you discover you've been the victim of credit card fraud, it’s important to act fast and report it to the appropriate authorities.
To start, be sure to let your credit card company know. Speak with the fraud department and ask them to cancel the card immediately. If someone has already placed charges on your card, you may also need to file a fraudulent charges dispute. This will keep you from being held responsible for any fraudulent activity.
When talking with your credit card company, ask them to send you a new card. Make sure to change any passwords or PINs you've set up and avoid using the same information with your new card or account.
Once you handle everything with the credit card issuer, report the fraud to the Federal Trade Commission (FTC) at IdentityTheft.gov. You can share details about your credit card fraud through the online form or telephone number. You'll receive an Identity Theft Report and a personalized recovery plan, which will guide you through the steps you need to take to address the fraudulent use of your credit card.
You should also sign up for monitoring and alerts to receive notifications of future fraudulent use of your information. You can contact either Experian, TransUnion or Equifax to set up fraud alerts. You only need to contact one of the credit bureaus, and that one you contact will alert the other two. This will help with credit card fraud detection in case it occurs again.
How to prevent credit card fraud
Of course, the best plan of action is to prevent fraud from occurring in the first place. There is a lot of information about how to protect your credit cards from scammers, but here are the top steps to protect yourself from credit card fraud.
1. Set up transaction alerts for monitoring
The best credit cards typically offer fraud protection, so you aren't held responsible for unauthorized charges. To be extra safe, take the additional step of setting up transaction alerts with your credit card company. This way, you'll receive a notification if anything seems suspicious. Some credit card companies do this automatically. If not, make sure to request the alerts.
2. Monitor your credit report for suspicious activity
You are entitled to one free credit report from the major credit bureaus each year. Make sure to take advantage of this and review your report carefully. This is an excellent way to dig into your credit history and ensure everything is as it should be. You should only see accounts you signed up for and actively use on your report.
If you notice anything out of order, like accounts you don't remember signing up for, it could be fraud, and it may be time to take action to address it.
3. Use secure online payment methods
Make sure to protect yourself online and be mindful of security when shopping. Take the time to verify that the website is legitimate before completing a purchase. Check the website URL for any misspellings, and make sure it starts with "https" because the “s” stands for secure. Another indication of a secure website is the small padlock icon in your browser's address bar, which means the website is safeguarded with a security certificate.
4. Beware of phishing scams
A phishing scam is a type of fraud wherein a bad actor impersonates someone, like a banking institution or government agency, and then asks for your private information. Some phishing attempts seem very real, so stay vigilant. Before you give out information to anyone, be sure you have verified and can trust who you're speaking or emailing with.
Keep an eye out for poor spelling, grammatical errors or email addresses that don't originate from the domain of the supposed institution. Avoid clicking links if you're at all unsure.
When in doubt, try another way of contacting the agency that supposedly reached out to you, like phoning your bank or going to a .gov website. They can tell you whether the message truly originated from them. They can also show you where to report the phishing attempt if it did not.
5. Keep your credit card information confidential
Only share credit card information with people who need it. Additionally, don't store your card or information anywhere someone can access it easily.
If you need to transmit credit card information to pay for a product or service, avoid putting it in writing via text message or email. A better option is to share it verbally over the phone. While it's easy to store card information in your web browser, it puts you at risk of fraud, so it's best to avoid doing so.
If you receive credit card statements in the mail, shred them before recycling. Thieves may be able to get personal information from your discarded mail.
6. Report lost or stolen cards
If you discover your credit card was stolen or misplaced, report it immediately. Even if you have a credit card with fraud protection, it's crucial to alert the company as soon as possible. You can freeze the account if you think you may find your card again or close it altogether if it has been stolen. Your credit card company can also place alerts on your account to watch for unauthorized charges.
7. Use strong, unique passwords for all of your accounts
The best way to keep someone from using your information is by preventing them from accessing it in the first place. Use unique, hard-to-guess passwords for all your accounts, financial or otherwise. Don't use the same password for multiple systems, and never share passwords with anyone.
If you are part of a security breach or your password is compromised, change it as soon as possible.
8. Consider using a credit monitoring or fraud detection service
Don't wait until fraud occurs to set up alerts. Experian, TransUnion and Equifax offer monitoring to keep you informed of any fraudulent activity on your credit cards. If you sign up with one agency, they will notify the other two. The Initial Fraud Alert service typically lasts for a year. If you've been the victim of fraud already, you may be able to request an Extended Fraud Alert that lasts up to seven years.
You can also sign up for credit monitoring services from third parties. These services typically charge a monthly fee but can monitor your data and inspect the dark web for any information leaks. Many identity theft protection services also offer credit monitoring.
Do police investigate credit card theft?
Credit card fraud is illegal, but whether the police investigate cases depends on a number of factors.
Police may investigate the theft of a credit card if it was among other stolen items, as in a home robbery or car theft. Police typically do not investigate a single stolen credit card. If there is concern about a larger ring of criminal behavior, law enforcement may be more likely to spend time investigating.
In most cases, the credit institution and the FTC handle credit card fraud investigations.
Is credit card fraud a felony?
The punishment for credit card fraud varies based on the severity of the crime committed and the state in which it took place. Each state defines what constitutes a misdemeanor versus a felony differently, breaking felony credit card fraud into different classes.
While credit card fraud is always illegal, it becomes a felony in some states when the amount of money surpasses a certain threshold, the fraud is perpetrated against the government, or the fraudulent behavior crosses state lines.
Credit card fraud punishment often results in prison time. In fiscal year 2021, per the United States Sentencing Commission, over 92% of those convicted of credit or other financial fraud received prison time. The average prison sentence was 27 months.
Summary of Money's guide to credit card fraud
Credit card fraud is when a thief steals your personal credit card information and uses it to make fraudulent purchases. The thief may steal your physical credit card, get access to your credit card number or steal other personal information to open fake credit card accounts in your name.
Credit card fraud is increasingly common. Even in the best-case scenario, it's frustrating and unpleasant to deal with. By remaining vigilant and setting up protective measures, you can reduce your risk of credit card fraud. It's best to use a combination of measures like setting alerts, prioritizing security and privacy and regularly monitoring your credit and accounts.
If you become the victim of fraudulent activity, there are steps to take, but you must act quickly. Contact your credit card company and the FTC right away so they can help you through the process.