*Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on product links. For more information, please see our Advertiser Disclosure
Imagine for a second that your credit card is gone from your wallet. Without any indication of where it could be, you immediately become terrified – is someone right now depleting the funds from your account? This type of fraud is a very real and very worrisome and this type of theft can leave you feeling as violated as someone stepping into your home to burglarize you.
What Is Credit Card Fraud?
Credit card fraud is a term used to describe a wide range of fraudulent activity using a credit card. Any time an unauthorized use of a credit card occurs in which funds are transferred is an instance of credit card fraud. People do it for many reasons; perhaps to buy things without having to pay for them or to gain access to the funds within an account. It is, in its most simplistic form, theft.
However, there is also the linked risk of identity theft. Identity theft is a broad term as well. It describes any instance in which one person poses as another person with the intent to steal, victimize or otherwise engage in illegal activities, using any type of identification, such as a credit card. Some believe credit card fraud can lead to identity theft, and it most certainly can but the two are different.
Here's what you need to know about these two threats:
- Credit card fraud's most common form is in the illegal use of the card. A person steals another person's credit card and uses it to make a purchase. Most thieves will get rid of the card quickly to avoid tracking.
- It is possible for individuals to try to create a separate identity for themselves using the credit card of another person. This may include making purchases using the card over a long period of time. It may also include applying for additional credit cards under the individual's name. The highest risk for this occurs when an individual's personal identification, such as his or her driver's license and Social Security number, are also stolen.
All forms of course are illegal. If you feel you are the victim of this type of fraud, you need to contact the credit card issuer as well as the local police department to report the crime. Doing so protects you in the long term.
Types of Credit Card Fraud
There are many different types of credit card fraud. The risks to you as a consumer are mind boggling when it comes right down to it. Beyond anything else, consumers need to know they can be aware and event prevent some forms. Take a closer look at the risks you are facing.
- Application fraud – A person fills out an application for a new credit card or line of credit using someone else's name or an invalid name. This is also a form of identity theft.
- Unauthorized card number fraud – The most common form, a person uses someone else's credit card number to make a purchase. He or she does not even have to have the physical card in hand – just the number – to make this happen.
- Counterfeit card fraud – The creation of credit cards made or otherwise altered in an illegal way, such as fake cards or those with information changed. The numbers are often authorized accounts and the names on the card are fake.
- Intercept fraud – The credit card is stolen before it even made it's way to the applicant, such when a new card is taken from a mailbox.
- ATM fraud – Occurs when someone steals the PIN of another and uses it to access money from an ATM using the credit card. Pickpockets can do this by simply watching for victims and taking advantage of them.
New methods continue to be developed too. For example, card readers that look and work like those in a traditional retail location can be placed in open view. The criminal simply swipes the card twice – once for the purchase and a second time for the theft. Later, the information is downloaded and used. Other devices allow for the gathering of information from the magnetic strip – just getting close enough to one of these devices puts you at risk.
There are many risks consumers face and, even since the dawn of credit card use, this has been a problem. By understanding the risks, consumers can make better decisions about the risks as well as how to avoid them.
The History of Credit Card Fraud
When did people start stealing you ask? Well, it is likely this could be tracked to the pre-dawn man who stole from another human's kill to sustain his or her family. However, credit card theft has been happening since the beginning of credit card use in one way or another. Over time, the risks have escalated significantly and technology has helped make it easier for individuals to steal.
Look at the history of this type of fraud and look at how it has evolved over time.
- Initial documentation of credit card fraud beyond the simple theft of a card and unauthorized use of it was theft over the phone. A person posing as a customer representative called a cardholder, asked for verification of a card's information and stole the information.
- Criminals upped the stakes by creating huge undercover operations in which they would pose as various organizations, charities or businesses (even those posing to sell things) and contact consumers over the phone to steal information.
- Dumpster diving is still one of the biggest risks and it has been around for nearly as long as the credit card. It is easy to find disposed statements and even cards this way. Though many companies have reduced the amount of information on paper statements or moved to online statements, it is still a risk.
- With the dawn of the Internet came additional methods for stealing information from fake programs set up to attract buyers to spyware that monitors keystrokes. The Internet has become one of the biggest risks.
The laws are still trying to keep up and there are numerous instances of major theft occurring. In 2007, the largest case of credit card fraud came to the forefront in the United States. At that time, a man named Albert Gonzalez and ten associates were indicted on charges of hacking into TJ Maxx and other companies using a computer sniffer program. In doing so, the criminals stole the credit card and debit card numbers of more than 45.7 million people.
So, How Can You Protect Yourself?
Here is the thing – most people use credit cards and do not think twice about doing so. Some do not even check their credit card statements for transactions they did not make. Being aware is one of the most important things you can do. Do not just hand over your credit card to the server, watch them scan the card properly.
Technology is improving and there are now numerous methods in production that could reduce the risks to consumers even more so. For example, the "pin and chip" technology that is currently in use throughout much of Europe could work in the US. This method creates a simple but very straightforward way of helping consumers. A few other technology companies are also on the verge of creating some exciting new credit card theft prevention methods.
- Be aware of what is happening with your credit cards.
- Do not let anyone else scan your credit card.
- Use only trusted, secure websites to make purchases.
- Check your credit report every three to four months and report all data that is not accurate or that looks suspicious.
- Read your statement. Federal law provides consumers within a period after receiving their statement to dispute charges and, potentially, to not have to pay for unauthorized charges.
Credit card theft will grow and change to meet the current trends in the industry. If there is a weak point, you can count on thieves taking advantage. Arm yourself with as much knowledge as possible to make sure you don't become part of the statistics.