How Does Credit Card Fraud Affect Your Credit Score?

Allison Martin
Credit card protection

Were you recently victimized by credit card fraud? Perhaps your card was stolen, or a cyber thief swiped your 16-digit account number and made a series of fraudulent purchases while the card was in your possession. Although the federal law limits your liability to $50, being victimized by credit card fraud can tarnish your credit rating.

When Fraud Is Detected

When you report the fraud to your credit card issuer, they will immediately disable the card and issue a replacement with a new card number. The newly issued card will not impact your credit rating; the creditor will simply report the updated the account number to the credit bureaus and all the other information, such as the current balance, opening date, and credit limit will remain the same.

Fraud Alerts

A fraud alert, which can be placed on your credit report free of charge, will deter criminals from opening additional accounts in your name. "When you have an alert on your report, a business must verify your identity before it issues credit, so it may try to contact you," says the Federal Trade Commission (FTC). Fraud alerts remain intact for 90 days and can be renewed. They do not impact your credit score. To learn more or place a fraud alert, contact one of the credit bureaus using the number listed below:

  • Equifax- 1-888-766-0008

  • Experian- 1-888-397-3742

  • Transunion- 1-800-680-7289

Impact On Credit Score

Below are the five components of your credit score, and how they can be impacted by credit card fraud.

Payment History

This accounts for 35 percent of your credit score. When your card is used fraudulently, you may not be aware that a payment is due, especially if the thief successfully files a change of address request. Unfortunately, these actions will have a negative impact on your payment history. According to Equifax, a single late payment could plummet your credit score by as much as 110 points if you have stellar credit, but the impact isn't as severe if you have other late payments in your credit file. As the delinquency spans into 60, 90 or even 120 days, you also run the risk of the account being sold to a collection agency. Late payments will remain on your credit profile for seven years, although the impact will diminish as time progresses.

Amounts Owed

This accounts for 30 percent of your credit score. The higher your overall debt to available credit ratio, the more severe the impact to your credit score. If you have $5,000 in available credit, and a fraudster racks up $3,000 in charges, your credit score will take a hit. Simply put, the higher the amount of credit card fraud, the more severe the impact if you don't have much available credit across the board.

Length of Credit History

This accounts for 15 percent of your score. If a creditor closes existing accounts that have been impacted by fraud and refuses to reopen them, your credit score may decrease until the issue is resolved.

Credit Mix

This accounts for 10 percent of your credit score. Creditors prefer to see both revolving and installment accounts. However, if a thief opens too many credit cards in your name, the impact to your credit score could be severe.

New Credit

This accounts for 10 percent of your credit score. The more credit cards a fraudster applies for in your name, the more your credit score will suffer. Each hard credit inquiry decreases your credit score by less than five points, according to myFICO. However, too many inquiries and new credit accounts in a brief period can be detrimental to your credit score and communicate to creditors that you pose a greater risk, the article adds.

Examples of Credit Card Fraud

Depending on the contents of your credit report, type of credit card fraud committed and when you detect it, the impact on your credit score will vary. A few scenarios to consider follow.

Credit Card Applications

When a fraudster applies for credit using your personal information, your credit score could take a major hit. Why? For starters, chances are they will max out the card and vanish into thin air when it is time to make a payment (if you have not yet discovered the account exists).

You should also be mindful that most fraudsters do not stop with one application for credit. Instead, they will continue to seek new credit as long as the approvals keep rolling in, and each new inquiry will also ding your credit score.

Change of Address

This is common for fraudulent new accounts. "Sophisticated credit card fraudsters [sometimes] change your billing address to delay the length of time it takes you to notice your newly opened lines of credit," notes Business Insider. To do so, the thief contacts the credit card company, submits the required proof of identity, and continues to spend until you unravel the damage and close the account.

Fraudulent telemarketer

Telemarketers

Have you recently received a call from a telemarketer offering an all-inclusive vacation package at an irresistible rate? Proceed with caution if they require a credit card to secure the offer since there's a possibility the company could be fraudulent or the representative will keep an extra copy of your credit card information for their own personal records. The same rule applies when using call centers to remit payment via phone.

Cyber Theft

If cyber thieves hijack your card information, fraud may also be difficult to detect since the card is still in your possession. By the time you realize you have been victimized, your score may already be in shambles, and it could take months to sort everything out. To commit cyber theft, all the perpetrator needs in most instances is your name, address, account number, and card expiration date. (The card security code on the back isn't always required to make a purchase).

Dumpster Diving

Another old-fashioned but common tactic for credit card fraudsters is dumpster diving. While it's not the most sanitary way to do things, dumpsters can easily turn out to be a goldmine for fraudsters if they stumble upon old account statements and pre-qualification letters that contain information they can use to apply for new credit. If the fraudster is lucky enough to retrieve replacement cards that you disposed of accidentally, there's also the risk they'll call the toll-free number to activate the account and start swiping until the card is maxed out. All of these actions can ding your credit score since your outstanding debt balances will be higher, and there's a possibility you can receive a negative mark for a delinquent account if the fraud goes undetected.

Stolen Credit Card

Since it is easier to detect a stolen credit card, chances are you will report the theft before too much time lapses and significant damage is done. However, a stolen replacement poses another issue. You may have thought it was simply lost in the mail or forgotten about it altogether, but the fraudster may have already opened the account and started swiping away. The end result is a higher debt to available credit ratio.

An Important Consideration

When your card is closed due to fraud, you must notify service providers who use automatic withdrawals or recurring billing. Otherwise, they may report the past due account(s) to the credit bureaus after 30 days have passed. If the account sits for too long, it will become a collection account and remain on your credit report for seven years, even once the balance is paid in full.

How to Protect Yourself from Credit Card Fraud

The FTC recommends you take the following precautions:

  • Protect your personal information at all times.

  • Thoroughly analyze financial statements.

  • Confirm your mailing address.

  • Review your credit report.

  • Enroll in credit monitoring.

Disputing Fraudulent Charges

In the event you are impacted by credit card fraud, contact credit bureaus immediately to see if they can help you remedy the issue. If your attempts are unsuccessful, you can file a dispute with each of the credit bureaus using a credit dispute template or file a grievance online. By taking these actions and remaining vigilant of your account information, you will greatly minimize the lasting effect of falling victim to credit card fraud.

How Does Credit Card Fraud Affect Your Credit Score?