Updated June 18, 2019

How to Prevent Credit Card Fraud

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Credit cards are more convenient than carrying cash. But are they safe? As identity theft increases, you need to protect yourself. Read on to learn how.

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Credit card fraud - the illegal use of a credit card for unauthorized purchases or cash withdrawals - is the most common type of identity theft.

That means that you can never be too careful with your card. Learn all about credit card fraud and how to prevent it in our comprehensive guide.

Identify Theft vs. Credit Card Fraud

Identity theft and credit card fraud are sometimes used interchangeably. But they aren't the same thing.

Credit card fraud is just one type of identity theft.

The Numbers
14.2 million people had credit card numbers exposed due to data breaches in 2017, according to the Identity Theft Resource Center .

That number represents an 88% increase from 2016. Even large businesses are susceptible: Adidas, Delta Airlines, Sears, and several other big companies have all had data breaches in 2018.

Identity Theft
Identity theft occurs when someone steals personal information like your Social Security number, bank account, or credit card number.

Identity theft could be committed using your:

  • Social Security number
  • Bank account information
  • Email account
  • Credit card number
  • Medical insurance number
  • Full name and address
  • Date and place of birth
  • Driver's license and/or passport number

A thief might use that information to open lines of credit in your name, make unauthorized purchases, or steal money. Some things, like your name and address, may not seem particularly valuable.

But scammers could mail you fake documents or sales letters to extract further personal information. They could also use it to impersonate you on the phone or web.

NOTE: Proving your innocence in cases of identity theft can be difficult and time-consuming.

It will involve lots of calls, emails, and paperwork. For example, getting reimbursed for fraudulent purchases may require contacting every business where the thief opened an account.

Identity theft can also hurt your credit score if a thief opens new credit accounts in your name.

Credit Card Fraud
Credit card fraud happens when a thief secures the information printed on your credit card or steals your physical card.

Typically, the damage is limited to that line of credit. Thieves use stolen credit card information to make fraudulent purchases. They may also steal money via cash advances.

Shutting the card down usually prevents further damage. However, credit card fraud should be taken seriously. If your card number was stolen, it might mean other personal information has been exposed, which could lead to greater identity theft.

Credit card theft takes many forms. Keep reading to learn more.

You Should Know: People convicted of credit card fraud misdemeanors typically receive a maximum of a year in jail and up to $1,000 in fines, depending on the state of prosecution and personal history.

For felony convictions, the punishment could be $5,000 or more in fines and several years in jail.

How to Spot Fraud

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You should regularly check your credit card statements to check that no unauthorized purchases are being made with your card.

When you scan your statements, look for large purchases you don't recognize and charges from unfamiliar vendors.

Be sure to frequently check your credit report too. If anyone has opened a fraudulent account in your name, it will appear on your credit report. Look for:

  • Unknown new account listed on your credit score report

  • Denied credit unexpectedly

  • Missing mailed credit card statements or other bills

  • Calls from collection agencies about unknown purchases or bills

  • Receiving a new credit card you did not apply for

If you experienced any of these situations, you might be a victim of larger identity theft.

TIP: Billing errors, like double charges, are usually NOT a sign of fraud.

Call your card issuer within 60 days of purchase to contest these charges. It's likely in these situations the merchant or payment service just made a mistake.

Different Types of Credit Card Fraud

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Credit card fraud usually occurs in two ways:

  1. Phishing: If you receive paper mail, email, or a phone call asking for your credit card information to verify your identity, it may be a phishing scam.

    NEVER send personal information like the following via email or text message, even to friends or family:

    • Credit card numbers
    • Social Security number
    • Bank account number

    Thieves also steal people's mail and trash to commit credit card fraud. Mailed cash advance checks or trash with personal information may give access to your existing credit card information. It also allows them to apply for a credit card in your name.

    TIP: If you are unsure a call from your bank or credit card issuer is legitimate, hang up and call the number on the back of your credit card. This will guarantee you speak to a real representative.

    Only give information over the phone when you can verify the identity of the representative with whom you are speaking.

  2. Skimming: This type of fraud uses electronic devices called skimmers that copy your credit card details when swiped. Thieves then use that information to make online purchases or to print the information onto a fake card.

    Skimming devices can be attached to any magnetic strip swiper or reader. Gas stations, ATMs, restaurants, and store checkout terminals are common places where credit card skimmers may lurk.

WARNING: You can sometimes spot a skimming device at an ATM by looking carefully at the card reader slot. If you see any of these signs, the card reader might be fitted with a skimmer:

  • Card reader slot is a different color than the rest of the machine
  • Reader slot covers up words or symbols printed on the machine
  • Reader slot looks different than an otherwise identical ATM next to it
  • Keyboard, screen, or other parts of the ATM look damaged or tampered
  • Pieces of the ATM wiggle or appear loosely attached

If you have the option, always insert your credit card chip rather than swiping. Chip technology, also known as EMV, is more secure than magnetic strip swiping (although not foolproof).

If you have a mobile wallet on your phone, this is the most secure payment method currently available.

What Thieves Do with Your Information

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Once they have your data, thieves can commit fraud in several different ways.

Card Not Present Fraud
Card not present (CNP) fraud happens when a criminal uses your credit card number to make a purchase without a physical card being present.

If a criminal has the expiry date and account number of a credit card, that's enough information to make a purchase.

Credit Card Imprints
Credit card imprints are fake cards encoded with card information stolen via a skimming device. Imprint cards only work via swiping. The fake card's magnetic strip holds the stolen card information.

Card ID Theft
When a criminal accesses your account details to take over your account or open a new account in your name, it's known as card ID theft.

This type of theft can blindside its victims because a criminal could access their account without them knowing.

Identity theft convictions can result in fines of over $5,000 and several years in prison, depending on the extent of the charges and state of prosecution.

Non-Receipt Credit Card Fraud
A thief stealing your new credit card from your mail is called non-receipt credit card fraud. If the thief can register the card, they could make unauthorized purchases.

Account Takeover
Account takeover happens when thieves access your personal information and pretend to be you to credit card companies.

The thief could change your password and ask for a new credit card to be sent to their address. This is one of the more difficult types of identity theft to stop.

Application Fraud
If someone hacks your personal information to apply for a new credit card in your name, you are a victim of application fraud. Typically, banks require original documentation to stop identity theft criminals.

Learn how to prevent credit card fraud and keep your information safe below.

NOTE: An unexpected drop in credit score may also be a sign of fraud. If you check your score and find it significantly lower than expected, it's also worth investigating.

How to Prevent Fraud Online

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Check for Online Security Verification
Look for the lock icon in the browser's URL box. When you click it, it should say "connection is secure" or "connection is encrypted."

If you don't see the lock icon, your connection may not be secure, meaning a hacker could view your credit card information.

Only Use Trusted Websites
Just because a site says it's secure doesn't mean it is. When in doubt, find a telephone number associated with the business and give them a call.

Scam websites will be less likely to have a representative working the phone lines.

When visiting a website, search for the business name rather than typing the URL in your browser.

Scammers have previously stolen people's information by setting up fake websites with similar URLs and homepages to legitimate bank or retail websites.

Only Use Trusted Phone Apps
Just like websites, phone apps that store your credit card information can also be hacked. When you download a new app, read the app's privacy policy and security measures to understand how your information is protected.

If purchasing an in-app subscription, go through your app store using Apple Pay or Google Wallet rather than directly from the app's website.

Don't Store Your Card Information
Although it's convenient to save your information in a web browser, it might not be safe.

If you lose your device or forget to sign out of a shared computer, a hacker could access your card information. To best protect yourself from fraud, avoid storing your credit card number in any auto-fill system.

Keep Your Devices Virus-Free
Install anti-virus software on your computer to keep it safe from hackers. Never click a link or open an attachment in an email from an unknown sender.

When installing a new phone app, check the number and quality of the reviews first. For many operating systems, app developers do not go through a vetting process to offer their app. This opens the door for potential hackers.

Secure Your Technology Devices
Every device you own - including your smartphone, tablet, and computer - should be secured with a password. This is especially true if you conduct banking or financial business on your device.

Enable facial recognition or thumbprint identification to add extra security when possible. If you use banking or shopping apps, lock these with a password, too.

Resist the temptation to stay automatically logged into different apps on your phone. If the device is ever stolen and hacked, your information will be at risk.

How to Prevent Fraud over the Phone

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Beware Phishing Scams
As we've discussed, phishing scams target people via phone calls, email, and text messages. If you receive a call from a company claiming to be associated with a credit card or financial company, hang up and call back using their official number. Y

You should NEVER have to give personal information to someone who contacted you.

Don't Pay over the Phone Unless You Know the Business
Some businesses will ask for your credit card information for over-the-phone payments. Only provide it if you trust the business.

If you found the company via the Yellow Pages and have never visited their physical store, tell them you are not comfortable providing your card information over the phone. If they want your business, they should provide another way to pay.

How to Prevent Fraud in Person

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Check for Skimming Technology at Gas Stations
Like stand-alone ATMs, gas station card readers are often targets for skimming devices. If the plastic around the card reader looks tampered, loose, discolored, or different than other pump card readers, just pay inside the station.

Use Digital Wallet Payments When Shopping in Stores
Mobile pay methods use a system called tokenization that detaches the payment data from your card's account information.

Credit cards processed via tokenization are unusable to any hackers, since they can't reverse engineer credit card information. Some examples of popular digital wallets are Apple Pay, Google Wallet, Samsung Pay, and Microsoft Wallet.

Just like your phone, you should set a password for your digital wallet. Use something different than your phone's password. That way, even if a thief manages to break into your phone, they won't be able to use your stored card information.

Use Chip Technology
Not all stores are digital wallet compatible, but credit card chip technology is the new global standard. Chip technology, known as EMV, uses enhanced security measures that are more secure than magnetic strips.

When given the option between swiping your card and using your chip, always opt for the chip. EMV, while not entirely foolproof, delivers the card's information in a more secure way than swiping.

If for some reason your card does not have a chip, contact your credit card company and ask if it is available. If it is, they should send you a new EMV card for free.

Fill Out all Credit Card Receipts
When handed a receipt for a credit card purchase, double-check the cashier charged you the correct amount. If there are any blank spots on the receipt for a tip, add a zero or cross mark so a store employee can't try to add a different amount later.

How to Prevent Fraud at Home

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Review all Billing Statements
Credit card companies track consumer purchase reports for fraud, but mistakes still happen. Check your statements regularly for strange or unfamiliar purchases.

Sometimes online purchases will show up with shortened or coded names. Compare the name to recent receipts or do a quick internet search. If the charge's source is still a mystery, it doesn't hurt to call your card company.

Use Strong Passwords and Don't Share Them
For your banking and credit card accounts, create usernames and passwords different from other accounts.

Only share your password or username with someone you trust completely, like a spouse. Otherwise, keep them private.

TIP: Don't be lazy when choosing a password.

They should be eight or more characters and hard to guess. So stay away from birthdays, family member names, or song lyrics.

If you ever receive a phone call, text message, or email from someone claiming to be a representative from your credit card issuer, NEVER give them your username or password. Any legitimate card representative would never ask for this over email, phone, or text.

Shred Important Documents Before Tossing
Even your trash makes you susceptible to thieves. Before tossing credit card statements or any other documents that contain personal information, shred them first. Especially if you are in a hotel room or other public space, it's important to protect your personal information to avoid credit card theft or identity theft.

Sign Up For Text Alerts
If you prefer real-time updates, sign up for credit card alerts via email or text message. For certain card providers, you can set alerts for purchases over a certain spending threshold. You'll be alerted immediately about any purchases made with your card - either by you or a thief.

How to Prevent Fraud While Traveling

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Keep Cards in a Safe Place
When traveling, use a money belt or small pouch to protect yourself from pickpockets. As with all valuables, know where your cards are. A hotel room safe, if available, is a great option when you don't need them.

If you have a Radio Frequency Identification-enabled card, buy an RFID-blocked wallet. RFID scanners can pick up credit card information simply by proximity. In some cases, thieves will use RFID scanners to gather credit card information from unsuspecting tourists.

An RFID-blocked wallet will protect your cards from unwanted scanning. Not all cards have RFID chips, however, so check if yours does before you buy one.

How Do I know if my credit card has an RFID chip?
Look for an icon that looks like radio waves or the symbol for Wi-Fi connection on the front or back of your credit card.

Use Verified Bank ATMs
ATM skimming devices are more common in some countries. You are usually safest withdrawing money from an ATM inside a bank rather than a stand-alone ATM on the street or inside a store.

When abroad, using the ATM of an internationally recognized bank, like Citibank, will reduce the likelihood of theft. Skimming devices are much less likely to be attached to ATMs in a bank. For extra protection, use an ATM with security camera surveillance.

Be Cautious of Public Networks
When traveling, using the Wi-Fi in a coffee shop or airport is very convenient. But it might not be safe. When your computer connects to public networks, like Wi-Fi in a Starbucks, all server connections could be traceable by a hacker, including any credit card purchases.

Sometimes scammers even set up their own fake Wi-Fi hot spots to steal people's information.

Use your cellular network rather than Wi-Fi when conducting banking business in a public space. Cellular connections are more secure than most public Wi-Fi networks.

How to Prevent Fraud as a Brick-and-Mortar Business Owner

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Embrace Chip Technology
Consumers and business owners both benefit from chip technology. Using payment methods with chip payment reduces the risk of credit card theft at your business. Why? It's much more difficult to create a counterfeit chip card.

If fraud occurs with a chip-enabled card because you did not have EMV payment technology, you could be held liable for the charges. You can learn more about liability policy for business owners here.

Ask for Secondary Identification
Chip technology does not reduce the risk of someone using a physically stolen credit card - like one removed from a stolen wallet. To mitigate this risk, you could ask customers to provide secondary identification when paying with a credit card.

Any thief attempting to make a fraudulent purchase at your store will likely be stopped when asked for another form of ID.

Look for Illegitimate Cards
Sometimes a simple visual check works wonders. When checking out customers, do a quick once-over of their credit card to make sure it looks legitimate. Signs of a fraudulent card include:

  • Damaged or non-working magnetic strip
  • No hologram
  • Poorly printed lettering or numbers
  • Abnormal coloring
  • Name on card does not match customer's ID

Also verify that the back of the credit card is signed - if it is not, don't accept it.

How to Prevent Fraud as an Online Business Owner

Use a Secure Online Payment System
To keep your customer's data safe, make sure your website's payment methods are secure. Some secure third-party payment processers are:

By using one of these or another payment system, your business does not have to store any credit card data. Instead, the payment system will directly handle the transaction in exchange for a transaction fee.

Collect All the Customer's Information
When processing a credit card payment over the phone or online, you should gather the following:

  • Cardholder name
  • 16-digit card number
  • Expiration date
  • Phone number
  • Cardholder's billing address

Once you have this information, use an Address Verification Service to confirm the billing address the customer provided matches the credit card issuer's information.

Watch for Unusual Orders
Some possible signs of fishy online purchasing behavior are:

  • Large quantities of one item
  • Multiple purchases in one day
  • International orders from new geographies for your business
  • Orders with multiple billing addresses or a billing address different from shipping
  • "Big-ticket" orders
  • Overnight shipping

A purchase matching one of these categories isn't necessarily fraudulent. But double-checking orders that match these behaviors could help you more easily pinpoint a case of fraud.

What to Do if You Experience Fraud

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  1. Call the Card Issuer
    As soon as you notice a fraudulent charge, call your credit card issuer to report it. You can find the number to call on the back of your credit card.

    The company will put a freeze on your account to stop further usage and investigate the situation. Your card issuer will also send you a new credit card with a new account number at no cost.

    Once you receive and activate the new card, you can use it as normal. Your old card's account will remain frozen until the investigation is over. You are still liable for paying the non-fraudulent charges on the account.

    TIP: If your credit card company doesn't offer expedited shipping, ask for it.

    Some companies, like Discover, will send a new card with expedited delivery for fraud cases. Others, like Citi, Chase, and Bank of America, will often provide rush shipping upon request.

    Otherwise, you'll wait 7-10 business days for your replacement card.

    Credit card issuers are constantly monitoring accounts for fraudulent activity. But remember, no representative from your credit card company should ask you to provide sensitive information.

    If you're unsure, hang up and call the number on the back of your card. This guarantees you'll speak with a legitimate representative.

  2. Change Your Passwords
    Now that a thief has your credit card number, they may be able to access other personal information as well. You should change all your passwords and PIN numbers, including those to online sites where you stored your number.

    Also remember to disconnect the stolen card from shopping websites, browsers, or subscription services storing your card information.

  3. Call a Credit Agency
    Call the three major credit agencies - Experian, Equifax, and TransUnion - and ask to place either a fraud alert or credit freeze on your account.

    • Fraud Alert: Requires vendors to verify your identity before opening a new line of credit in your name. Fraud alerts are helpful for stolen or missing credit cards, where the card may have fallen into the wrong hands.

      With a fraud alert you:

      • Can still apply for new credit lines

      • Must provide secondary identity verification when opening new credit

      • Lift by calling a credit agency

      • Have the option to extend after the automatic 90-day expiration

    • Credit Freezes: Completely prohibit lenders from accessing your credit report history.
      With a credit freeze you:

      • Stop yourself or anyone else from opening new lines of credit

      • Enter a PIN number to unfreeze your account when you need to

      • Never have to renew in 47 states. (You must renew after 7 years in Kentucky, Nebraska, and Pennsylvania.)

    Wondering how to choose between a fraud alert or credit freeze?

    If you're not planning to open any new lines of credit soon, a credit freeze is more secure. Opt for a fraud alert if you plan to apply for a loan or credit card soon and need unfrozen credit. As of September 2018, both fraud alerts and credit freezes are free.

Credit Bureau Contact Information:

TransUnion:
1(800) 680-7289
Create an account online here.

Equifax:
1(800) 525-8285
Create an account online here.

Experian:
1 (888) 397-3742
Visit the Credit Fraud Center.

  1. File a Report with the FTC and the Police
    You should also file a report with the Federal Trade Commission (FTC) Identity Theft department AND your local police. This will preemptively protect you if the credit card fraud turns into larger identity theft.

    Filing a report also helps the FTC keep track of credit card fraud data and could help indicate a larger data breach. The Identity Theft Report can be used instead of a police report as evidence of your innocence if the credit card company contests your charges.

    Start with the FTC report. You can file online or via phone. You'll then receive:

    • A recovery plan
    • Pre-filled form letters to send to merchants, banks, and other establishments affected by the theft
    • An official Identity Theft Report

    To file a police report, go to your local station and request to file. Make sure to bring a copy of your FTC report and proof of residence.

    You Should Know: Don't be surprised if you receive a lukewarm response from the police. Many departments don't have the resources to investigate.

    That doesn't mean reporting the fraud to the police is a waste of time. It might contribute to broader fraud investigations.

  2. Monitor Your Accounts and Credit:
    When your credit card issuer freezes your account, it doesn't necessarily mean the end of fraudulent charges. Some fake charges take several months to appear on your statements. For real-time updates, sign up for text or email card charge notifications via your online account portal.

    In the months following the fraud, check your credit score. Use a credit reporting service to look up your credit score for free any time.

    Any unnoticed fraudulent purchases may show up on your credit report as outstanding payments. These can negatively impact your score.

    Some free credit score reporting services are:

WARNING: Monitor your accounts closely in the following months so you're not blindsided by greater identity theft.

Being a victim of credit card theft can be a pain, but identity theft is much worse. Report the first signs of suspicious or fraudulent activity to avoid unnecessary hassles.

What to Do if Your Business Experiences Fraud

If your business experiences internal fraud, start an investigation. Pinpoint any areas of your business that may be affected to find a possible cause and stop future occurrences. Make sure to protect your customers' data if there was a breach in security.

Once you know the extent of the damage, be transparent and honest with your customers. Reassure them of the steps being taken to prevent future occurrences. For fraudulent purchases that occur within a brick-and-mortar business, you should not be liable unless you have not yet updated to accept EMV technology.

With an online business, you'll have a tough time reclaiming already-shipped merchandise purchased fraudulently. You'll also be responsible for reimbursing the fraud victim if the bank comes looking for the money.

TIP: Consider chargeback insurance to mitigate the effects of credit card fraud.

Your business insurance provider may reimburse you the lost profit, depending on your policy.

What Happens Next

Once you've taken all the necessary steps, your credit card issuer handles the fraud case. If the fraudulent amount is large enough to justify an investigation (usually over $25), the company has two billing cycles or 90 days to investigate, whichever is shorter.

Card issuers are legally required to provide you a written update after 30 days.

You are still liable to pay the non-fraudulent outstanding charges on the old credit card. While the investigation is ongoing, according to the Fair Credit Billing Act the credit card company cannot:

  • Close your account

  • Attempt to collect the disputed outstanding charges, including interest

  • Report you to the credit bureaus for failing to pay disputed charges

If a creditor ignores these limitations or takes too long to respond to your dispute, you are not responsible for paying the disputed charges, according to the FTC.

After receiving the written update of the investigation, you have 10 days to respond. If you disagree with the investigation's conclusions, write to them and say that you refuse to pay all or part of the disputed amount (and why). Your bill might then be sent to a collection agency, who will handle the dispute on the company's behalf.

But hopefully, this part of the process will be painless. Credit card companies have well-practiced measures for investigating fraud to keep customers happy and headache free. Typically, customers do not have drawn-out disputes with card issuers about fraudulent charges.

The Bottom Line

In our increasingly digital world, we often share our personal information via computers. This puts our information at risk.

ALWAYS verify businesses and people before you provide your information. It's also important to proceed cautiously whenever someone asks you for personal information.

Follow these tips to protect yourself from credit card and broader identity theft. By staying vigilant, you'll keep your information safe and have a better chance of avoiding these issues.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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Technology advances have prepped credit cards for easier use and tighter security. It's now up to consumers to make the changes widespread.

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CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.