Every year, millions of Americans become victims of credit card fraud. While many financial institutions have robust protective measures in place, they aren’t foolproof and these scams can still wreak havoc on your personal finances. In the following article, we’ll examine the various types of credit card fraud, how to identify it, the steps to take if you should become a victim, and how you can protect yourself in the future.
What is credit card fraud?
This type of financial deception occurs when someone uses your credit card or credit account to make a purchase you didn't authorize, and it can happen in many different ways. If your credit card is lost or stolen, it can be used to make purchases or other transactions either in person or online. Fraudsters can also steal your credit card account number, PIN, and security code to make unauthorized transactions without needing your physical credit card. Unlawful transactions like these are known as card-not-present fraud. Identity theft can also involve credit card fraud. In this situation, the scammer illegally obtains information about you, such as your personal information, Social Security number, and/or credit card number in order to use your existing accounts or open new ones in your name. When this happens, criminals are able to capture the spending power of your good credit while you get stuck footing the bill.
Get to know the types of credit card fraud.
Scammers are creative and they've come up with many ways to pilfer your personal information. These include:
- Credit card theft: It happens all the time: you look away for a moment and your wallet disappears off the store counter where you placed it while making a purchase. When your credit card is stolen, you should immediately notify the card issuer.
- Using a lost or found credit card: Let’s say your card falls out of your pocket in a parking lot. Someone who finds the card could try to use it. Always report lost cards to the credit card issuer immediately to reduce the chance of someone making fraudulent purchases.
- Account takeover: A fraudster can use personal information such as your home address, mother's maiden name, etc., to contact your credit card company or bank, pretending they’re you. They then may claim your card has been lost or stolen, or that you've changed addresses, and attempt to get the card issuer to send them a new card. Many issuers require the use of a pre-established PIN when calling them, which can be invaluable in preventing this type of fraud.
- Counterfeit cards: After illegally obtaining your credit card account information with a device called a "skimmer," swindlers can create and attempt to use a duplicate card. The increased use of chip technology in the U.S. has reduced this type of fraud.
- Intercepting mailed cards: Although credit card companies try to protect cards in transit, a new card can still be stolen from your mailbox if it can’t be locked.
- Fraudulent applications: Using your name, birth date, Social Security number and other personal information, criminals may attempt to apply for new credit in your name.
- Card-not-present: While point-of-purchase fraud has decreased because of chip technology, payment experts report that this type of fraud has increased. In this scenario, the criminal doesn’t need the physical card in order to use it deceptively. He or she only needs basic information such as the credit card number and cardholder's name to commit mail order or online fraud.
Vigilance is your best defense.
Because credit card fraud is so prevalent and can occur even when your card is still in your wallet, it's important to monitor all of your credit card accounts regularly:
- Review your billing statements every month and look for unfamiliar charges.
- Watch for bills from unknown sources or calls from collections agencies for accounts you didn't open.
- Check your credit report regularly and look for unfamiliar inquiries, new accounts you didn't authorize, or addresses of locations where you've never lived.
- Enroll in a credit monitoring service.
If you discover someone has made unauthorized charges on your credit card account, you should:
- Immediately contact the issuing company and cancel your card. Many have zero-liability policies, meaning you won't be responsible for any fraudulent charges made on your accounts. What's more, federal law limits your liability for fraudulent credit card charges. If someone uses your lost or stolen credit card before you report it missing to the card issuer, the maximum amount you can be held responsible for is $50.
- Change your online passwords and PINs. This will prevent the fraudsters from doing any further damage.
- Put an initial security alert on your credit report. This can be especially helpful if you're not sure how your information was compromised. Contact one of the three major credit bureaus—Experian, TransUnion or Equifax—to initiate the alert. Whichever credit bureau you contact will notify the other two major bureaus of your request.
- Keep an eye on your bank statements. If you notice signs of deception or suspicious activity, notify your bank immediately.
- Request a copy of your credit report. Often, signs of fraud—such as new accounts you don't recognize—will show up on credit card statements first, followed by your credit report.
So how can you protect yourself from becoming a victim?
Although it's impossible to completely eliminate the chance you'll ever fall victim to evolving credit card fraud schemes, there are steps you can take today to reduce your risks, including:
- Keep your wallet or purse secure at all times to protect your credit cards from theft.
- Only carry the credit cards you actually need and use. Whether you’re traveling or just going out for dinner, chances are, one card will do the trick. And never carry your Social Security card on your person.
- When shopping online, only buy from reputable companies and/or ones whose security measures you can verify. For example, only visit sites with web addresses that begin with https: the "s" indicates the site is secure.
- Get one credit card with a low credit limit that’s strictly used for online purchases.
- Only give your credit card number or personal information over the phone when you have initiated the contact or are able to verify that you’re talking to a trusted source.
Credit card fraud can be a frightening prospect, but you can protect yourself.
By taking basic steps to safeguard your account information and looking out for suspicious charges on your statement, you can greatly reduce the chance you'll ever suffer from credit card fraud.
Do you have questions or wish to learn more about how to defend against financial fraud? Our friendly, knowledgeable advisors are here to help. Please contact us anytime.
About FAI Wealth Management, Inc.: Located in Columbia, Maryland, FAI focuses on helping clients create the financial future they desire by protecting their wealth, making the most of their assets, and planning for life's uncertainties. The firm combines fee-only, fiduciary-driven guidance with highly personalized, consultative financial planning and investment services that enable individuals, families, and businesses to navigate complex life transitions. Founded in 1987, FAI currently manages more than $350 million in client assets nationwide. For more information about FAI Wealth Management, please visit the website at https://www.faiwealth.com or call 410.715.9200.