Credit Card Fraud Explained

Credit Card Fraud Explained

When looking for the credit card fraud definition you will find a lot of information. Simply put, credit card fraud is a broad term to define fraud and theft that is committed and involves using either a debit card or a credit card as a source of funds for a fraudulent transaction.

The purpose of credit card fraud could be to get things without paying for them or to obtain money from an account. Credit card fraud also ties into identity theft. The rate of identity theft in the United States has been steady during the mid-2000s.

However, in the year 2008, the rate of identity theft went up by 21 percent. However, credit card fraud, which is the crime often associated with identity theft, went down as a percentage of all identity theft complaints for the past six years.

21 %
Increase of ID Theft

Credit Card Fraud Types

The payment industry has been hard at work creating new ways to combat fraudsters as a way to create a more secure environment for financial transactions. From using holograms to providing a tamper evident signature panel, to cvc numbers, as well as an EMV chip, many of these security features are now a standard in the industry.

Security Assurance

Even with all of the security measures that have been put in place, credit card fraud still occurs. There are eight types of fraud that are associated with credit and debit card transactions. These are:

  • Lost or Stolen Credit/Debit Cards: this is a relatively common way credit card fraud occurs. If your card is lost or stolen it is important to report it right away in order to minimize any possible damages.
  • Account Takeover: this occurs when a cardholder provides personal information to a fraudster. The fraudster will then contact the bank of the cardholder and report a card lost and offer a change of address in order to obtain a new card in the victim’s name.
Be Aware of BFraudsters
  • Counterfeit Cards: This occurs when a card is copied from another card and then used in order to make purchases. In Asia Pacific, roughly ten to fifteen percent of credit card fraud results from malpractices like skimming. However, this number has gone down significantly in the past couple of years, mostly do to the safety features that have been added to cards such as the EMV chip.
  • Never Received: this type of fraud occurs when a rightful owner never receives their new or replacement card as it is stolen from the mail.
  • Fraudulent Application: this is when a fraudster will use another person’s information in order to apply for and obtain a new credit card.​
Credit Card Counterfeiting
  • Multiple Imprint: this occurs when a single transaction is recorded more than once on one of the older imprint card machines.
  • Collusive Merchants: this type of credit card fraud occurs when merchant employees work with a fraudster in order to defraud a bank.
  • Telephone/Mail Order Fraud: this include e-commerce and is a large portion of total payment credit card fraud as it amounts to almost 3/4s of all reported fraud cases. There is a lot of work being done to improve credit card verification to help prevent fraud in cases where a card is not present during the transaction such as over the phone or online. According to an article in Forbes, merchants pay out over $190 billion a year because of credit card fraud.

When dealing with credit card fraud it is important to note there is credit card fraud protection in place for consumers. This zero liability policy means that a consumer is not responsible for any fraudulent activity that takes place using their cards.

How Does Credit Card Fraud Detection Work?

If you have ever been involved in a credit card fraud case, you may have wondered how your bank detected the fraudulent activity. The simple answer is that credit card companies use a process of analyzing each of your credit card transactions.

This analysis recognize your patterns of spending behavior. Using this information it is easy for the credit card companies in order to pick out transactions that could be fraud. To put it simply, you are being tracked by your credit card. Each purchase that you make is used to create an individual spending profile and this profile is what is used in order to detect fraud.

A break in your spending pattern is the easiest way for a credit card company to recognize fraudulent activity. For example, if you live in Indianapolis, Indiana and suddenly your card is being used by someone on Charlotte, North Carolina, it may imply that there is possible fraud.

The charges to your card may be declined and you may need to verify them if it is indeed you who are using the card.

money back guarantee under question

Some of the information used in these patterns include:

  • Location: as in the example above when you live in one place, but a purchase is made in another.
  • What you purchase: if your card is typically only used to buy coffee and gas and then suddenly an expensive pair of shoes is purchased.
  • Amount you spend: if you typically spend around $500 per month and suddenly spend $3000 in just over a week.
  • Spending Frequency: if your card is suddenly used to make many purchases in a short amount of time.
  • Large purchases made after smaller ones: credit card thieves will often test a stolen credit card number by making a small purchase first, such as a song off of iTunes. When the card works they will then purchase something larger such as a television or sound system.
Scam Over Phone
  • Digital origins: the internet has made making purchases much easier. However, this means that it makes it easier for thieves to commit fraud as well. Digital origins for each purchase are recorded and analyzed. If a certain IP address has been used for fraudulent activity in the past, all transactions made from the same IP address or network might be flagged.

There is a lot about fraud protection that we are simply not told about and the reason for this is because the less information about protection and fraud detection that is available, the more successful the credit card companies will be in catching any fraudulent attempts.

How to Prevent Credit Card Fraud

When it comes to credit card fraud prevention there are several steps that you can incorporate into your daily routines in order to help keep your accounts and card numbers safe. To start, keep a record of all your account numbers as well as their expiration dates and a phone number to report fraud.

You should also never lend your card to anyone and never leave statements or receipts lying around. When you do not need these documents make sure that they are shredded before you throw them away.

Other practices to include in your fraud protection plan include:

  • Do not give out your account number on the phone unless you called the company and know they are reputable.
  • Never sign a receipt that is blank. If there is a blank space above the total draw a line through it.
  • If traveling, report your locations to your card issuer.
  • Carry credit cards separately from your wallet or purse. This can minimize losses if your wallet or purse is stolen. Only carry the card that you need for a particular outing.
  • Save your receipts and compare them to your statement
  • Report questionable charges to your card issuer

Reporting Credit Card Fraud

If your card has been stolen or lost, make sure that you contact the credit card issuer as soon as you realize it. When you report the theft or loss the law states that you are not responsible for any charges that you did not make. If you believe that your card was illegally used you may need to sign a statement under oath that you did not make the purchases being questioned.

Scam Over Web

Credit Card Fraud Penalties

Laws against credit card fraud have established criminal penalties for the unauthorized or deceptive use of another person’s credit card accounts to steal services, money, or goods. These laws are enforced by several agencies including local police departments all the way up to the secret service.

There are new schemes being developed all the time to evade law enforcement, but the most common crimes involving credit card theft are either card present crimes, where a physical card has been stolen. This also includes attempts to get new cards in another person’s name.

All other types of credit card fraud are card not present crimes. This is where the thief does not have access to the actual card. This type of fraud occurs when a card number is used and the card is not actually swiped during the point of sale. These are the most difficult types of fraud to detect.

Penalties For Conviction of Credit Card Fraud

When laws are drafted regarding credit card fraud, typically there is not an attempt to identify and specifically prohibit all potential types of schemes. Instead, these laws are often written in a way using general terms to encompass many types of fraudulent behavior.

The penalties for these crimes is often based on the amount of money or the value of the items that are obtained during the fraudulent activity.

For example, one state statute may consider credit card fraud a misdemeanor if the amount does not exceed $500. This crime would carry up to one year in the county jail and around a $1000 fine. As the amount of the property value increases, the penalty for the crime increases as well.

When property of significant value is obtained, a felony credit card fraud crime can be punishable by up to fifteen years in prison as well as a $25,000 fine.


Credit card fraud is a serious epidemic and it is something that everyone needs to be aware of. When using your credit or debit card at any time it is important to make sure that you are vigilant about keeping track of all of the purchases that you make.

Obtaining receipts and comparing your purchases to your credit card statement is a good way to make sure that you are not being charged for things that you did not purchase.

Credit card companies have been working hard throughout the years to come up with different security features to help stave off credit card fraud attempts. These security features are just one of the ways that a consumer’s account is protected. In addition, there are policies in place to protect a consumer from any fraudulent activity that is found on their account.

Always be Aware of Credit Scams

While the credit card companies have put certain measures in place, it is important to take your own precautions as well. Never share your card information with anyone and when making a payment over the phone or online make sure that the payment site is secure and that you have called the company that you are making a phone payment to.

Only make payments on trusted and secured lines.

If you do notice any fraudulent activity on your card, make sure that you contact your credit card company or bank as soon as possible. It is important to take care of any suspicious behavior as soon as possible so that you do not end up losing even more money.

While you are protected from having to pay for any charges that you did not make, it is important to get the problem taken care of as soon as possible.

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