Credit Card Fraud
If you use a credit card, there’s a good chance you’ll become a victim of credit card fraud eventually. Some research implies that you’ll probably encounter fraud rather than avoid it.
Credit card fraud can include:
- Physical cards stolen and used before being reported missing.
- Account holders tricked into divulging their credit card information, which is then used for unauthorized purchases.
- Account information compromised in massive data breaches at retailers, agencies, credit bureaus, and elsewhere.
- Identity theft, in which criminals open accounts and run up debt in someone else’s name.
With so many opportunities for criminality, it’s impossible to shield yourself entirely from credit card fraud, but vigilance can reduce your exposure and limit the potential damage.
How common is credit card fraud?
The Federal Trade Commission (FTC) regards credit card fraud as a form of identity theft. According to FTC data in early 2022, credit card fraud has invariably been the most commonly reported type of identity theft since 2017. However, FTC statistics reflect only fraud cases reported to the agency, and most instances of fraud never get reported. They’re handled directly by the issuer. Based on data from the Federal Reserve and the Census Bureau, an average of 9.5 million consumers a year experience an incident of credit card fraud.
According to the most recent Survey of Consumer Payment Choice, conducted by the Federal Reserve Bank of Atlanta, 3.5% of credit card holders in 2020 said they had experienced an incident of loss, theft, or fraud related to their credit card. The annual average is about 4.7%.
The survey also reported that 79% of consumers have at least one credit card. Going by the Census Bureau’s 2020 count of 258 million adults in the U.S., that’s about 203 million credit card holders. Using the 4.7% figure, an average of 9.5 million people a year are victimized by credit card fraud.
Meanwhile, a 2021 survey by researchers at Security.org found that 58% of respondents had experienced credit card fraud at some point in their lifetime, with 9% saying they’d been victimized four or more times.
How does credit card fraud cause credit report errors?
Credit card fraud can adversely affect your credit when fraudulent accounts or transactions are reported to the credit bureaus and added to your credit reports. For example, if someone uses your credit information to make purchases and you don’t realize it, the higher credit card balance and utilization rate will hurt your scores.
Or, perhaps someone gets information from a credit card you seldom use. If the card issuer doesn’t have your current contact information, you might not find out if the fraudster uses the card and doesn’t pay the bill. As a result, you could wind up with late payments in your credit history that hurt your scores.
In a similar scenario, someone could steal your identity and use your information to open a credit card in your name. The application and new account could lead to a hard inquiry and lower the average age of your accounts, both of which can hurt your credit. You might only realize what’s happened when you check your credit report and find an account you don’t recognize with a high unpaid balance.
How severely is credit card fraud punished?
Credit card fraud can be prosecuted at the state or federal level, depending on the types of fraud committed by the perpetrator.
There are often differences in how each state prosecutes credit card fraud. Most credit card fraud cases that lead to criminal charges are handled at the state and local levels. The severity of punishment depends on multiple factors, including the fraudster’s criminal history, the amount stolen, whether they had criminal intent (as opposed to accidental misuse of credit card information), and whether the victim was elderly. In some states, if the severity of the crime warrants a felony conviction, the felony is broken down into different classes, typically based on the state’s identity theft laws.
Credit card fraud becomes a federal crime when it affects interstate or foreign commerce. Federal penalties for using a device to commit fraud (the law defines a credit card as such a device) can include up to 20 years in prison, plus fines and forfeiture of personal assets. Making an online purchase with someone else’s credit card or using a card issued to someone in another state is enough to be considered a federal crime.
Fraudulent credit card use can also fall under several other federal crimes, including computer fraud, mail fraud, wire fraud, and financial institution fraud, with penalties of up to 30 years in prison.
How to protect yourself from credit card fraud
First, here is the good news. Regarding credit card fraud, your liability under federal law is typically capped at $50, assuming you promptly report unauthorized charges to your credit card issuer. Since most major credit card issuers offer zero liability fraud policies, you’ll likely owe nothing in these cases. However, that doesn’t mean credit card fraud isn’t still a headache. It involves contacting your issuer, canceling your current card, waiting for a new one in the mail, and entering the new number into all autopay accounts linked to the old card.
Financial fraud and identity theft aren’t limited to credit cards, so reducing your risk is always a good idea. Here are some steps:
- Follow good safety practices. Phishing and skimming are popular methods criminals use to steal credit card numbers, so learn how to protect yourself against such tactics.
- Consider a credit card usage strategy where you designate one card solely for autopay accounts such as bills and subscriptions while using another for everyday purchases. That way, the card that pays your important bills isn’t in your pocket and exposed to outside interference.
- You may benefit from a smartphone-based payment app, which shields your account information via “tokenization.”
- Avoid making credit card transactions over public Wi-Fi, and make your passwords difficult to guess.
- Consider freezing your credit reports. If you think you may be vulnerable to identity theft, freezing your reports will prevent criminals from opening new accounts in your name. Keep an eye on your currently open accounts, as they will still be active and available for fraudulent purchases if a criminal has your information.
- Contact authorities as soon as you notice fraudulent activity. Notify your credit card issuer, the police, and the three major credit bureaus (Equifax, Transunion, and Experian) if you’ve become a victim of fraud or theft. Have your issuer close the compromised card and send you a new one, but keep records of the fraudulent transactions. Keep notes about your conversations with your issuer and the authorities in case the timeline of your disclosure is ever disputed. Even after the situation is resolved, keep a close eye on your accounts to ensure no other fraudulent activity slips through the cracks.