How does Credit Card Fraud Happen?
Credit card fraud is classified as identity theft since the fraudster, using stolen information, is essentially pretending to be the account holder. They accomplish this in two major ways: account takeovers and application fraud. In account takeovers, a fraudster can make use of a credit card by stealing it from a legitimate user and then impersonating that person to conduct unauthorized transactions.
So, how do the fraudsters gain the personal information of the cardholders? There are several ways through which fraudsters can capture vital credentials of individuals. Some of the ways are:
- Skimming the credit cards suppose at a gas station pump or ATM
- Lost or stolen credit cards
- Calling about fake prizes or wire transfers
- Hacking your computer
- Looking over your shoulder at checkout
- Phishing attempts, such as fake emails
- Stealing your mail
This list is not exhaustive as fraudsters always find new methods to steal information to attempt credit card fraud. There is no foolproof way to stop hackers or fraudsters from making such frauds.
Credit Card Frauds in USA: How it Happens & How to Avoid?
Credit card fraud is a form of theft where a fraudster makes a transaction by using another person’s credit card. It is a kind of identity theft where unauthorized transactions occur by either charging purchases to the account or withdrawing funds from the account. In some cases, this can be an incident of outright theft when the fraudster steals the credit card or its related information. It is one of the common types of bank fraud as it affects approximately more than 151 million adults (65% of the cardholders) in a single year in the US alone. As credit cards are the most common mode of payment in the US, credit card fraud is also common. Further, the fraudsters can easily take control of the card, increasing these thefts.
The U.S. Federal law (15 U.S.C. §1643) has put a limit on credit of $50 to cardholders for credit card theft, but most banks can waive this amount if the cardholder signs an affidavit explaining the theft. As of 2023, the Federal Trade Commission has mentioned that credit card fraud has become the most common identity theft in the U.S.
Key Takeaways
- Credit card fraud is when a fraudster attempts unauthorized purchases using another person’s credit card.
- In the U.S., millions of credit cards or their numbers are stolen every year accounting for billions of dollars in illegal activities.
- The federal law states that a cardholder is limited to just $50 for credit card fraud and the theft must be properly justified and reported and proper measures should be undertaken.
- There are third-party theft protection services that are expensive and they follow the same procedure which can be followed by any individual.
Table of Content
- How does Credit Card Fraud Happen?
- Examples of Credit Card Fraud
- Types of Credit Card Fraud
- How to Avoid Credit Card Fraud?
- Impact on Financial Organizations
- How can Companies Detect and Prevent Credit Card Fraud?
- Conclusion
- Credit Card Fraud – FAQs