Understanding Credit Card Fraud

Allison Martin
Using a credit card online

With so many people using credit cards to make purchases in-person, online and by telephone, credit card fraud is an important issue that has the potential to impact just about anyone. Credit card fraud is certainly not an unfamiliar occurrence in the United States.

Credit Card Fraud Statistics

According to 2012 statistics compiled in a study by the Department of Justice, 40% of all financial fraud involves credit cards and approximately ten percent of Americans have fallen victim to some form of credit card fraud. On average, each incident amounts to $399 and the overall cost of fraud worldwide is $5.5 billion.

A recent report from Javelin Strategy and Research also noted that credit card fraud has increased by more than 87% annually since 2010, and has accounted for $6 billion in losses.

How Credit Card Fraud Happens

Credit card fraud can happen to almost everyone. Credit card thieves will go to extremes to get your card number, as well as other information about the card necessary for its use, such as its expiration date and CVV code.

  • Dumpster diving: Thieves often dig through trash cans and dumpsters hoping to gain access to discarded credit card statements, voided store receipts and other transaction documents that may have been thrown away without being properly shredded.
  • Skimming: They sometimes use credit card skimming machines to capture and replicate credit card numbers that consumers use to make purchases.
  • Hacking: Thieves may hack into the computer systems used by retail, grocery or other stores to process your credit card number when you use it for payment.
  • Misrepresentation: Thieves frequently misrepresent themselves as legitimate business persons, contacting you over the phone or online to sell you an item. When you provide them with your credit card number they misappropriate it for their personal use.

After obtaining your number, thieves either print out a new card or use the number for online purchases. Sometimes, they will test your card number first by charging a small amount. If the charge goes through, they know the account is valid and can be used for more purchases.

Recognizing Fraud

As the credit card fraud epidemic continues to spread, both consumers and providers search for ways to hedge against the issue and reduce the monetary losses that result from it.

Consumers

There are various warning signs that may demonstrate fraudulent activity on your credit card. These include, but are not limited to:

  • Inaccurate charges appearing on credit card statements
  • The receipt of approval or denial notices for credit card accounts that you have not applied for
  • Mail that is missing or has been tampered with
  • Calls from collection agencies regarding accounts that you have no prior knowledge of
  • Correspondence requesting the approval of large transactions that you did not authorize
  • Denial of transactions when sufficient funds should be available on the credit card

Providers

According to Andrew Schrage of Money Crashers, credit card companies "lose approximately seven cents per every hundred dollars of transactions due to fraud." To hedge against this risk, credit card issuers work hard to decrease the occurrence of credit fraud by analyzing spending patterns through automated systems to grasp an understanding of the consumer's common behaviors. If irregularities arise in purchasing patterns, transactions will more than likely be denied by an automated system, and the account will be quarantined for a more extensive review. Common cardholder activity that raise suspicions include:

  • A small purchase followed by an unusually large purchase, which often indicates a fraudster's attempt to determine the status of the card
  • A large number of online purchases in a brief amount of time because thieves often rush to complete transactions before the card is de-activated
  • Transactions conducted at unusual locations outside of your standard radius
  • Random purchases for large amounts from retailers that are not frequently visited

In some instances, transactions may be approved, but you will immediately receive an alert via telephone or text message to confirm the validity of the transaction.

Reporting Suspected Fraud

If you suspect that you have been a victim of credit card fraud, take the following actions:

  • Call your card issuer to report that the card is lost or stolen
  • Write a follow-up letter documenting the issue to the card issuer. Send this letter via certified mail and request return receipt.
  • Record dates and times of calls and sent letters. Also, be sure to keep copies of any communication between you and the card issuer.
  • Contact local law enforcement to file a report.

Additionally, it is advisable to place a fraud alert on your credit file if you suspect or are an actual victim of credit card fraud.

Preventing Fraud

To protect yourself against fraud, keep a close eye on your credit or debit card use. Your monthly statements list each transaction individually. If you believe that one of the transactions was fraudulently made, contact the credit company immediately. Usually, they will reverse the charge made to your account and investigate its circumstances.

Another way to prevent fraud is to check your credit report regularly. Your credit report lists every account opened, running and closed in your name. If you do not recognize one of the accounts, contact the credit reporting agency.

These other simple tasks can also protect you against fraudulent use:

  • Sign the back of your credit card. A blank signature space makes it easy for a thief to sign your name using their own handwriting, allowing them to match the signature when they sign a receipt.
  • Write "Please Check Photo I.D." above the signature line. This will encourage cashiers to check your driver's license each time you use your card and prevent a thief from pretending to be you.
  • Keep only one or two cards with you. Even though many consumers have many active credit cards, you probably do not need them all every time you go out. Pick just one or two to keep in your wallet and leave the rest in a safe place at home.
  • Never give out your credit card number just because someone asks for it. This includes telemarketers, websites and emails. Unless you contacted the company yourself to make a purchase, you should never let anyone talk you into sharing your credit information.
  • Don't leave credit card numbers where others can find them. Keep your card out of sight when you are in a store, handing the card directly to the clerk to make your purchase. As soon as you get the card back, put it in your wallet. Always take the time to shred your credit statements before throwing them out, a simple way to avoid credit card fraud.
  • Keep PIN numbers and other security information separate. It may be tempting to write your PIN on your debit or credit card. Instead, keep it somewhere else in your purse or wallet and do not identify what the number is. Better yet, take the time to memorize the number or ask your financial institution for a number that is easier for you to remember.

Take Immediate Action

If you suspect credit card fraud, contact your credit company immediately and have the account closed. It is also a good idea to look into the credit history of your other cards, including any business credit or gas cards.

Understanding Credit Card Fraud