Credit card fraud vs. identity theft — how to know the difference

Credit card fraud and identity theft are two terms you have probably heard before. And if you’ve been unlucky, you may have even fallen victim to one of these two crimes yourself.

However, credit card fraud and identity theft aren’t the same. Both may involve the theft of information that belongs to you, but one is much easier to stop and recover from.

Read on for a look at how credit card fraud and identity theft are different. Plus, we’ll throw in some tips on how to recover from these crimes if the bad guys ever get their hands on your personal information.

Credit card fraud

Has a credit card issuer ever contacted you regarding a suspicious transaction you didn’t authorize? Or have you ever checked your credit card statement to discover charges you didn’t make? If you can answer yes to either of these questions, you have probably been a victim of credit card fraud.

The FBI defines credit card fraud as “the unauthorized use of a credit or debit card, or similar payment tool (ACH, EFT, recurring charge, etc.), to fraudulently obtain money or property. Credit and debit card numbers can be stolen from unsecured websites or can be obtained in an identity theft scheme.”

Technically, credit card fraud can be classified as a type of identity theft. Even so, it isn’t really the same as having your identity stolen.

Sure, it can be troublesome to find out someone stole your credit card information. It can be upsetting to learn that a thief used your account to pay for unauthorized purchases. Credit card theft, however, is typically much easier to stop and fix compared with other forms of identity theft.

As an example of credit card fraud, TPG credit cards writer Danyal Ahmed had his Chase Sapphire Reserve® compromised within two days of receiving the card in 2016. He used his card for the first time to pay for a meal at a restaurant. Soon after the in-person transaction, his card had nearly $10,000 in unauthorized charges.

See below for tips on how to handle credit card fraud if it happens to you.

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Identity theft

Identity theft is a term that professionals often use to describe something much worse than a few unauthorized charges on your credit card account. According to the FBI, “identity theft occurs when someone assumes your identity to perform fraud or other criminal acts.”

How do criminals get the information they need to assume your identity? The FBI explains that crooks can get your personal information from a variety of sources, such as:

• Stealing your wallet
• Rifling through your trash
• Compromising your credit or bank information
• Approaching you (in person, by telephone or on the internet) to ask for the information

When someone steals your personal identifying information (e.g., name, address, Social Security number, date of birth, etc.) and uses that information to open fraudulent accounts in your name, this is called true name fraud. When most people say their identities have been stolen, true name fraud is the crime to which they are really referring.

Unlike credit card fraud, true name fraud has the potential to haunt you for years. Trying to recover from identity theft can be a much bigger ordeal than simply changing your credit card number to stop a thief. Thankfully, there are federal laws designed to protect victims of identity theft.

See below for tips on how to recover from identity theft if it happens to you.

Recovering from credit card fraud

If someone uses your credit card without your permission, our first piece of advice is not to panic. Thanks to federal law, you are actually well protected from fraud liability.

In fact, as long as you report fraudulent charges promptly (within 60 days), you likely will not be held responsible for the phony transactions.

Here’s a look at the two main federal laws that protect you from credit card and debit card fraud.

• The Fair Credit Billing Act (FCBA): The FCBA caps your liability for fraudulent credit card transactions to a maximum of $50. Just don’t drag your feet. You must report any unauthorized charges to your card issuer within 60 days to enjoy this protection. As a matter of customer service, all four of the major credit card networks currently have zero-liability fraud policies. This means if you report fraudulent transactions to your card issuer promptly, you’ll probably never pay a dime out of your own pocket.
• The Electronic Funds Transfer Act (EFTA): The EFTA caps your liability on debit card fraud to no more than $500 ($50 if you report the fraud within two business days). In addition to higher liability caps, debit card fraud can be more painful for another reason. Unlike credit card fraud, it’s your personal money that a thief is stealing when debit card fraud occurs. As a result, the funds in your bank account might be tied up and unavailable to use while your bank investigates any unauthorized activity.

As you can see above, debit card fraud protections aren’t quite as strong as credit card fraud protections. This is one reason why we advocate that most people should choose credit cards over debit cards as their go-to payment method. The key here, of course, is to make sure you can commit to paying your balance in full each month.

Related: TPG’s 10 commandments of credit card rewards

Recovering from identity theft

If someone steals your credit card information, you can report the fraud to your card issuer, and it will shut down the account. As long as that thief can’t access your new card number (hint: update your online passwords frequently to be extra safe), the ordeal should be over.

The same isn’t true when your personal identifying information is stolen.

You can’t exactly change your Social Security number and your date of birth to prevent crooks from using your information for their own personal gain. But the good news is that you can make it a lot harder for bad guys to profit using your personal data.

Here’s how.

• Place fraud alerts on your credit reports with Equifax, TransUnion and Experian: The Fair Credit Reporting Act (FCRA) gives you the right to place free fraud alerts on your credit reports with all three major credit bureaus. When you place a fraud alert, it tells lenders they must first contact you to confirm your identity before opening any new credit accounts in your name.
• Freeze your three credit reports: With a fraud alert, a lender is supposed to ask your permission before opening a new account in your name. This leaves a little room for potential human error. With a credit freeze, on the other hand, new lenders cannot access your reports unless you allow your reports to be seen. (This is accomplished by “thawing” your reports in advance with a PIN code or password.)
• Check your credit reports frequently for signs of fraud: The FCRA allows you to expect only accurate information to be included on your credit reports. It’s up to you, however, to verify that your reports are indeed error-free. If you haven’t claimed your three free credit reports from AnnualCreditReport.com in the past 12 months, that’s a great place to start. Beyond that, we recommend checking your credit reports at least once a month as an added measure of safety. (Tip: Checking your own credit report will never damage your credit score.)
• Report identity theft promptly: If you become a victim of true name fraud, it’s important to report fraudulent accounts to the three credit reporting agencies promptly. You can visit the Federal Trade Commission’s IdentityTheft.gov to create a report. Once completed, send your identity theft report to Equifax, TransUnion and Experian. Per the FCRA, credit reporting agencies must block fraudulent information from your credit reports within four business days of receiving your identity theft report.

Being proactive is the key

Regardless of whether you’re a victim of credit card fraud or identity theft, it’s crucial to be proactive. You can’t expect your card issuer or the credit reporting agencies to detect fraud on your behalf (though sometimes you might get lucky).

It’s your responsibility to make sure that your credit reports and credit card statements contain accurate information.

Make a habit of checking your credit card statements and your three credit reports each month for errors, mistakes and fraud. If you discover suspicious activity, remember that you’re protected by federal law as long as you report the issue promptly.

Bottom line

Although both credit card fraud and identity theft are terrible situations, you can recover faster from credit card fraud thanks to federal laws and zero liability protection on credit cards.

On the other hand, identity theft is a much larger problem where your personal information, such as your SSN, date of birth and address, is compromised. In either scenario, report suspicious activity immediately to your credit card issuer and the credit reporting bureau to ensure you're protected.

Related: How to check your credit score for free