How to Prevent Credit Card Fraud
In today's increasingly digital world, credit cards have become important for managing the daily transactions of many consumers. The convenience and security offered by these financial instruments have transformed how we shop, pay bills, and conduct business. However, as credit card usage has grown, so has the prevalence of credit card fraud. This illicit activity not only results in substantial financial losses for businesses and financial institutions but also causes significant hassle and stress for consumers who fall victim to it.
Credit card fraud can take many forms, from the theft of physical cards to the hacking of online accounts. Fraudsters are devising new strategies to exploit vulnerabilities in credit card policies and technological systems. As a result, credit card companies and banks are continuously updating their security measures to counter these threats. While many institutions have implemented policies such as zero-liability and fraud monitoring, consumers still need to be vigilant and proactive in safeguarding their personal and financial information.
The consequences of credit card fraud can be severe, ranging from damaged credit scores to identity theft, and can take significant time and effort to resolve. In addition to financial implications, the emotional toll of dealing with fraud can be overwhelming, leading to vulnerability and mistrust. Therefore, consumers must be equipped with the knowledge and tools necessary to protect themselves from credit card fraud.
How to detect credit card fraud
Credit card fraud is on the rise. According to Security.org, 65% (151 million) of consumers with credit or debit cards have fallen victim to credit card fraud at least once. In 2022 alone, the FTC (Federal Trade Commission) received 441,822 credit card fraud reports. Be aware if new accounts start popping up in your name and you begin receiving calls from collection agencies for unknown bills.
"Assume your credit card number has already been stolen," says Eric Chan Tin, Ph.D., an assistant professor of computer science at Loyola University Chicago. "There's a huge market for credit card numbers."
Here are three ways to help you detect credit card fraud:
1. Monitor account activity
One of the most effective ways to detect credit card fraud is to monitor your account activity closely. Review your credit card statements and online transaction history for suspicious or unauthorized charges. Immediately report any discrepancies to your credit card company to initiate an investigation.
2. Set up credit card account alerts
Many financial institutions offer customizable alerts to notify customers of unusual or high-value transactions. Setting up alerts allows you to receive real-time notifications about potentially fraudulent activities and take prompt action.
3. Review your credit report
Check your credit report for any unauthorized accounts or inquiries that could indicate identity theft. You can get a free copy of your credit report from each of the three major credit bureaus at annualcreditreport.com.
Credit card fraud is common, but using a credit card is still one of the safest ways to pay. Credit cards offer greater fraud protection because they're not tied to your checking account like debit cards. If someone steals your debit card information, they can drain your bank account, leaving you with potential liability if you do not report the fraud to your financial institution in a timely manner.
How does someone steal your credit card information?
Pinpointing the exact moment when your credit card number was stolen isn't always possible.
Credit card fraud usually happens through data breaches or online point-of-sale transactions where hackers can intercept your personal information. They can make unauthorized charges using your existing credit card number or open new credit cards in your name as part of identity theft.
Fraudsters use various methods to steal credit card information from unsuspecting victims. Here are some common tactics that scammers use to steal your credit card information:
1. Phishing scams
Fraudsters may send emails or text messages posing as legitimate companies or financial institutions, requesting that you provide personal information such as your credit card number, card verification value (or CVV) code (the three-digit number on your card), or social security number. They may also direct you to a fake website that looks like the real one, where you are prompted to enter your credit card information.
"Scammers thrive on people who are stressed and are desperate and emotional," says Axton Betz-Hamilton, Ph.D., an assistant professor of consumer affairs at South Dakota State University and an accredited financial counselor.
2. Credit card skimming
Criminals sometimes install small devices called skimmers on credit card readers at gas pumps, ATMs, and other places where you swipe your card. These skimmers steal your credit card information and can be difficult to detect.
If you make a purchase online and the website has been breached, fraudsters can collect your credit card numbers and reuse them or sell them on the black market. E-skimming allows criminals to steal customer credit cards by injecting rogue code into a retailer's online shopping cart. It's nearly undetectable, as the site wouldn't look different to consumers.
"A weak point is identified on an e-commerce site, be that through phishing or targeting outdated versions of software with known vulnerabilities, and the code is inserted to 'eavesdrop' on any information entered by the customer," says Adam Levin, chairman and co-founder of Credit.com and CyberScout.com.
4. Social engineering
Fraudsters may call you, posing as a representative from a legitimate company or financial institution, asking you to provide your credit card information over the phone. They may use high-pressure tactics to persuade you to give them your information.
5. Fake websites and apps
Criminals sometimes create fake websites or mobile apps that look legitimate, prompting you to enter your credit card information. They may also create phony shopping sites with fake products at low prices to entice you to enter your credit card information.
6. Dumpster diving
Criminals may go through the trash looking for discarded credit card statements, receipts, or other documents containing your credit card information.
Understanding the tactics criminals use to steal credit card information is essential because it helps you identify potential threats and take steps to protect yourself. By knowing how fraudsters operate, you can be more vigilant in safeguarding your credit card information and avoid falling victim to scams that can lead to financial loss and identity theft.
How to protect yourself against credit card fraud
By staying informed and taking precautions, you can avoid the costly and stressful consequences of falling victim to credit card fraud. Below are some proactive measures you can take to protect yourself against credit card fraud:
1. Recognize phishing attempts
Fraudsters often use phishing tactics to trick individuals into revealing their sensitive information. Be cautious of unsolicited emails or messages that request personal or financial information, and never click on suspicious links or download unverified attachments.
2. Protect your physical card
Always keep your credit card secure and out of sight when not in use. Avoid lending your card to anyone or leaving it unattended in public places. Make sure to sign the back of your card as soon as you receive it to help prevent unauthorized use. When purchasing, try to maintain visual contact with your card and be cautious of card skimmers at ATMs and gas stations.
3. Use contactless payment
Embracing contactless payment systems, such as mobile wallets or tap-to-pay cards, is another way to safeguard your financial information. These systems use advanced encryption and tokenization to protect your credit card data during transactions. Instead of sharing your actual card number, a unique, one-time-use code is generated for each transaction, reducing the risk of your information being intercepted or misused.
4. Use strong and unique passwords
Create strong and unique passwords for your online accounts, especially those linked to your credit card. Use a combination of letters, numbers, and symbols, and avoid using easily guessable information like your name, birthdate, or common phrases. Update your passwords regularly and consider using a password manager to help keep track of them.
5. Enable two-factor authentication
Enable two-factor authentication (2FA) on all accounts, particularly online banking and e-commerce sites. 2FA adds an extra layer of security by requiring a secondary form of verification, such as a fingerprint, text message, or a code from a mobile app. This makes it harder for fraudsters to access your accounts even if they have your password.
6. Secure your home network
Ensure your home network is protected by using a strong, unique password for your Wi-Fi network and enabling encryption. Keep your router's firmware updated, and consider using a virtual private network (VPN) for added security when conducting online transactions.
7. Only shop on secure websites
When shopping online, only use reputable websites with secure connections. Look for the padlock icon in the address bar and ensure the website address begins with "https://" (the "s" stands for secure). This indicates that the site uses encryption to protect your information. Avoid making purchases on public Wi-Fi networks, as these may not be secure.
8. Don't make online purchases on public Wi-Fi
If you are going to make an online purchase, enter your credit card information on your home Wi-Fi or another trusted password-protected network. Public Wi-Fi at coffee shops, restaurants, or retail shops is more vulnerable to hacking.
9. Use an RFID-blocking wallet
Many credit cards are wireless, which allows consumers to tap to pay instead of swipe. Someone with a wireless card reader can bump into you and read your credit card information. Wallets with RFID-proof sleeves can block these wireless devices.
How to dispute fraudulent credit card activity
If you notice fraudulent activity on your credit card account, taking immediate action is vital to protect yourself and your finances. Here are the steps you can take to dispute fraudulent credit card account activity:
1. Contact your credit card issuer
Call the customer service number on the back of your credit card or log into your online account to report fraudulent activity. Explain the situation and provide relevant information, such as the transaction date, amount, and merchant name.
2. Dispute the charges
Your credit card issuer will typically investigate the fraudulent charges and may ask you to provide documentation to support your dispute. You may also need to fill out a dispute form.
3. Cancel your card
Your credit card issuer may cancel your current card and issue you a new one with a different account number to prevent further fraud.
Remember, quick action is critical when disputing fraudulent credit card account activity. The sooner you report the activity to your credit card issuer, the better your chances of resolving the issue and minimizing any financial damage.
How to file a credit card fraud report
When you file a fraud report with your credit card company, they will likely freeze your account and issue you a new card with different numbers.
Here are few other steps you can take:
1. Report identity theft to the FTC
If you believe you were a victim of identity theft, not just credit card fraud, report the incident or suspicious activity to the FTC to receive a personal recovery plan.
2. File a police report
The FTC can recommend if your circumstance warrants a formal report.
3. Freeze your credit
Contact the major credit bureaus -- Experian, TransUnion, and Equifax -- to freeze your credit and place a fraud alert on your credit reports. If your identity was stolen, this will prevent anyone, including yourself, from opening up a new account or credit card in your name.
4. Change your passwords
Review your financial accounts and create new passwords that are strong in case your accounts are hacked. A strong password and two-factor authentication on your account are also essential to further protect your financial information.
5. Contact a fraud specialist with your service provider
Many insurance companies, financial service organizations, and employers have programs to assist you through identity incidents and can provide access to a fraud specialist if needed.