How to identify and prevent credit card fraud

Editor’s note: This is a recurring post, regularly updated with new information.

Credit card fraud is a serious risk to individuals and businesses alike.

Despite measures like mobile wallets, chip cards, and Near Field Communication (NFC) technology, consumers are still at risk of having their credit card accounts used fraudulently.

Below, we’ll explain what credit card fraud is, the steps you can take to keep your card safe and what to do if the worst happens and your card is stolen.

What is credit fraud?

Credit card fraud is the result of someone making unauthorized purchases on your credit or debit card account. It could be someone you know who takes your card and makes purchases you didn’t give them permission for or a stranger who gains access to either your credit card number or the physical card.

Credit fraud can also occur through digital payment methods such as ACH, EFT or mobile wallets — although Google Pay and Apple Pay are some of the most secure forms of payment currently available.

American Express recently conducted a survey about how U.S. millennials and Gen Z are thinking about fraud. Both age groups — a whopping 69% of them — are concerned about fraudulent charges on their bank account even more so than someone hacking their social media profiles.

Regardless of the age group you belong to, keeping your credit cards and related accounts safe is possible if you know what to look out for and what to do if one of your cards becomes compromised.

How does credit fraud happen?

It helps to understand some of the more common examples of credit fraud. These include:

Your credit card number could be stolen if an e-commerce site where you shop gets hacked
Someone could rifle through your garbage to find account numbers
Someone can hack into your accounts if you log in through an unsecured Wi-Fi network
Thieves can use skimmers attached to point-of-sale payment terminals to access your credit card information if you use the magnetic stripe on your credit card for transactions

How can I identify credit fraud?

Banks have put specific measures into place to identify — and stop — credit card fraud. Your bank or credit card provider may call you if it detects unusual activity on your account.

For instance, let’s say you live in New York and have not notified your bank that you are going on vacation. If the bank detects card activity stemming from South Carolina, it may place a stop on your card or reach out via phone, email or text message to ensure the purchase is authentic.

WILLIE B. THOMAS/GETTY IMAGES

Your bank or related financial institution may also reach out if it detects unusually large purchases or multiple purchases that do not match your typical spending habits.

Furthermore, you can set up alerts for purchases exceeding a certain amount. But be aware that thieves often process a small payment first to see if they can get away with it. You can also set up your account so that you’re notified of any purchase, regardless of the amount, too.

Finally, reviewing your credit card statements or going online to check activity can help you stay on top of discovering credit fraud in a timely manner.

How can I prevent credit card fraud?

The first step in preventing credit card fraud is being aware that it could happen to anyone, regardless of how savvy they may be. In fact, a thief could gain access to your card information if you made a purchase through a secured, reputable e-commerce site that was later involved in a major data breach.

It happens. But there are measures you can take to protect yourself:

Pay with an EMV (tap-to-pay card which was developed by Europay, Mastercard, and Visa which is now the global standard) chip card, NFC “contactless” payment or a mobile wallet whenever possible
Avoid paying by card at businesses that only have a magnetic stripe payment system if possible
Shred all credit card statements before throwing them away
Use a secured wireless network when shopping online or accessing your financial accounts
Set up alerts so you will find out promptly if your card was used fraudulently
Do not give anyone your card information
Protect your smartphone and tablet with passwords
Monitor your credit card and other financial accounts frequently

Rajat Jain, SVP of Risk and Information Management, Fraud and Banking Risk at Amex says:

“Level up your mobile security: Help avoid account takeovers by using strong and unique passwords for each of your online accounts, and change them regularly. Wherever possible, download apps and enable two-factor authentication for your online accounts, which adds an extra layer of security by requiring a code, a fingerprint or a device to verify your identity. Also, be wary of phishing emails or messages, and do not click on any links, open any attachments, or provide account or personal information to parties that you are unsure about.”

What is the difference between credit fraud and identity theft?

Some people use the terms credit fraud and identity theft interchangeably. It’s true that credit fraud is a form of identity theft — but credit fraud is typically limited to a breach of a specific account, not your entire credit file. Credit fraud can be costly and time-consuming to its victims, but it is far easier to recover from a single incident of credit card fraud than it is to fix an identity theft situation.

In case of identity theft, the criminal or hacker gains access to your financial information not just to use your credit cards or accounts but also to open new accounts in your name.

Once thieves have your social security number and address, they can take out loans, apply for a mortgage and even obtain insurance — such as medical coverage or auto insurance — in your name. When this type of crime occurs, it is called “true name fraud.”

Resolving an identity theft case involves tracking down all instances where the thief used your information, proving you did not open the fraudulent accounts and having them closed. It can take years to recover from identity theft.

What should I do if I’m a victim of credit fraud?

Fortunately, recovering from credit card fraud is easier than resolving an identity theft case.

If you discover you are a victim of credit fraud, the first thing to do is to contact your bank and report the fraudulent charges. Review your statements to ensure you report all fraudulent charges and make sure you can account for every purchase made with the card in the past two months or so.

By federal law, you won’t be held liable for fraudulent credit card charges over $50 as long as you report them within 60 days. Visa, Mastercard, American Express, and Discover all have zero-liability fraud policies. If you report fraudulent charges quickly, you may not have to pay for any of them.

Likewise, the Electronic Funds Transfer Act (EFTA) limits your liability for debit card fraud to $50 if you report the charges within two business days or $500 thereafter. Your credit card issuer may recommend you file a police report for the fraudulent activity.

If thieves steal credit card information from one of your accounts, there is a possibility they may have also gotten access to another account. So check all of your accounts for fraudulent activity, too.

Finally, change your passwords on any financial accounts and e-commerce sites like Amazon, where you may store your credit card information.

Bottom line

Once you’ve taken immediate action to stop additional fraudulent activity, request copies of your credit reports from all three credit bureaus to ensure the fraud didn’t extend beyond credit fraud into identity theft.

As security measures increase with the advent of mobile payments, EMV chip cards, and contactless payment systems, thieves are also getting more creative.

Keeping tabs on your accounts and acting quickly if you spot unusual activity remain the best ways to save yourself the stress and hassle of dealing with credit fraud.