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How to prevent credit card fraud

Sept. 30, 2021
8 min read
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Editor’s note: This post has been updated with new information.


Credit card fraud remains a serious risk to individuals and businesses alike. Despite measures like mobile wallets, EMV chip cards, and Near Field Communication (NFC) technology, consumers are still at risk of having their credit card accounts used fraudulently. Here we'll explain what credit card fraud is, steps you can take to keep your card safe and what to do if the worst happens and your card is stolen.

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What is credit fraud?

(Photo by Shutterstock)
(Photo by Shutterstock)

Credit card fraud involves someone making unauthorized purchases on your credit or debit card account. It could be someone you know who takes your card and makes purchases you didn’t give them permission for or a criminal who gains access to either your credit card number or the physical card.

Credit fraud can also occur through digital payment methods such as ACH, EFT or mobile wallets – although Google Pay and Apple Pay are some of the most secure forms of payment you can use today.

Examples of credit fraud

It helps to understand some of the more common examples of credit fraud.

  • Your credit card number could be stolen if an e-commerce site where you shop gets hacked.
  • A thief could rifle through your garbage to find account numbers.
  • A thief can hack into your accounts if you log in through an unsecured WiFi network.
  • Thieves can use skimmers attached to point-of-sale payment terminals to access your credit card information if you are still using the magnetic stripe on your credit card for transactions.

How to identify credit fraud

Banks have put specific measures into place to identify – and stop – credit card fraud.

Your bank or credit card provider may call you if it detects unusual activity on your account. For instance, let’s say you live in New York and have not called your bank to say you are going on vacation. If the bank detects card activity stemming from South Carolina, it may place a stop on your card or reach out via phone, email, or text message to ensure the purchases were yours. This may be temporarily inconvenient, but it’s better than having to deal with fraudulent charges on your account.

Open traveler's bag with clothing, accessories, credit card, tickets and passport, travel and vacations concept
Let your bank know if you are going on vacation so you won’t get notifications of “unusual activity” while you’re away. (Photo by The Points Guy)

Your bank may also reach out if it detects unusually large purchases or multiple purchases that do not match your typical spending habits.

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You can also set up alerts for purchases exceeding a certain amount. But be aware that thieves often process a small payment first to see if they can get away with it. Likewise, you can set your account so that you’re notified of any purchase of any size.

Finally, reviewing your credit card statements or going online to check activity can help you stay on top of discovering credit fraud in a timely manner.

Related: How I learned that my credit card was stolen

Ways to prevent credit card fraud

(Photo by Shutterstock)

In today’s digital age, it may not be possible to prevent credit card fraud entirely. After all, if you made a purchase through a secured, reputable e-commerce site that was later involved in a major data breach, someone could gain access to your card information.

But there are measures you can take to protect yourself:

  • Pay with an EMV chip card, NFC “contactless” payment or a mobile wallet whenever possible.
  • Avoid paying by card at businesses that only have a magnetic stripe payment system.
  • Use a “virtual account number,” such as those issued by Citi, when you shop online.
  • Shred all credit card statements before throwing them away.
  • Do not shop online or log into your financial accounts on an unsecured wireless network.
  • Set up alerts so you will find out promptly if your card was used fraudulently.
  • Do not give anyone your card information.
  • Protect your smartphone and tablet with passwords.

If you’re going on vacation, consider leaving the physical cards at home and loading your accounts into Google Pay or Apple Pay. Just make sure to protect your phone with Touch ID or facial recognition. iPhone users can use the “Find my iPhone” app to remotely wipe the phone’s memory if it is lost or stolen.

Difference between credit fraud and identity theft

Some people use the terms credit fraud and identity theft interchangeably. It’s true that credit fraud is a form of identity theft – but credit fraud is typically limited to a breach of a specific account, not your entire credit file. Credit fraud can be costly and time-consuming to its victims, but it is far easier to recover from a single incident of credit card fraud than it is to fix an identity theft situation.

In case of identity theft, the criminal or hacker gains access to your financial information not just to use your credit cards or accounts but also to open new accounts in your name. Once a thief has your social security number and address, they can take out loans, apply for a mortgage, and even obtain insurance – such as medical coverage or auto insurance – in your name. The person can also perform other fraudulent or criminal acts using your name. When this type of crime occurs, it is called “true name fraud.”

Resolving an identity theft case involves tracking down all instances where the thief used your information, proving you did not open the fraudulent accounts and having them closed. It can take years to recover from identity theft.

What to do if you are a victim of credit fraud

Fortunately, recovering from credit card fraud is easier than resolving an identity theft case. If you discover you are a victim of credit fraud, the first thing to do is to contact your bank and report the fraudulent charges. Review your statements to ensure you report all fraudulent charges and make sure you can account for every purchase made with the card in the past 60 days or so.

By federal law, you won’t be held liable for fraudulent credit card charges over $50 as long as you report them within 60 days. Visa, Mastercard, American Express, and Discover all have zero-liability fraud policies. As long as you report charges quickly, you may not have to pay any of the charges.

Likewise, the Electronic Funds Transfer Act (EFTA) limits your liability for debt card fraud to $500, or $50 if you report the charges within two business days. Your credit card issuer may recommend you file a police report for the fraudulent activity.

If a thief stole credit card information for one of your accounts, there is a possibility he got more than one. Check your other accounts for fraudulent activity, too. Finally, change your passwords on any financial accounts and e-commerce sites like Amazon, where you may store your credit card information.

Bottom line

Once you’ve taken immediate action to stop additional fraudulent activity, request copies of your credit reports from all three credit bureaus to ensure the fraud didn’t extend beyond credit fraud into identity theft. As security measures increase with the advent of mobile payments, EMV chip cards, and contactless payment systems, thieves are also getting more creative. Keeping tabs on your accounts and acting quickly if you spot unusual activity remain the best ways to save yourself the stress and hassle of dealing with credit fraud.

Additional reporting by Stella Shon.

Featured image by Getty Images
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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Why We Chose It

If you are looking to take your premium rewards to the highest level, this card is really a no brainer in our eyes. Chase's Ultimate Rewards make points easy to redeem, with a wide range of 10 airline and three hotel transfer partners and a friendly user interface. Despite the high annual fee, Chase is consistently adding new benefits to keep the card competitive in a fierce premium rewards field.

Pros

  • $300 annual travel credit as reimbursement for travel purchases charged to your card each account anniversary year
  • Access to Chase Ultimate Rewards hotel and airline travel partners
  • Unlimited 3x points on the broad category of travel and dining
  • 50% more value when you redeem your points for travel through Chase Ultimate Rewards®
  • Broad definitions for travel and dining bonus categories

Cons

  • Steep $550 annual fee
  • May not make sense for people that don't travel frequently
  • You must spend the $300 travel credit before earning 3x points for travel and dining
  • No automatic hotel elite status
  • Earn 80,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,200 toward travel when you redeem through Chase Ultimate Rewards®
  • $300 Annual Travel Credit as reimbursement for travel purchases charged to your card each account anniversary year.
  • Earn 5x total points on flights and 10x total points on hotels and car rentals when you purchase travel through Chase Ultimate Rewards® immediately after the first $300 is spent on travel purchases annually. Earn 3x points on other travel and dining & 1 point per $1 spent on all other purchases
  • Get 50% more value when you redeem your points for travel through Chase Ultimate Rewards®. For example, 80,000 points are worth $1,200 toward travel
  • 1:1 point transfer to leading airline and hotel loyalty programs
  • Access to 1,300+ airport lounges worldwide after an easy, one-time enrollment in Priority Pass™ Select and up to $100 application fee credit every four years for Global Entry, NEXUS, or TSA PreCheck®
  • Count on Trip Cancellation/Interruption Insurance, Auto Rental Collision Damage Waiver, Lost Luggage Insurance and more