Credit Card Fraud: What It Is And How To Avoid It?

Credit card fraud has become a serious problem for financial institutions, businesses, and end customers as well. According to the Australian payment network, credit card fraud in 2021-22 amounted to $490.1 million. Global credit card fraud is expected to hit $408.50 billion in the next decade.

Despite the ease of electronic transactions, credit card scam is a threat to e-transactions. Not just that, it can bloat your credit card balance and adversely affect your credit score.

However, you can't ditch credit card transactions due to fraud. Instead, you need to take proactive steps to better understand credit card fraud and how you can avoid it.

Credit card fraud refers to the unauthorised use of another person's credit card. It involves stealing physical credit cards or credit card information by unauthorised means to scam customers and make financial transactions.

This type of fraud can also lead to identity theft as it involves impersonating the card owner to commit financial scam.

According to the Australia Bureau of Statistics, credit card fraud and scams were the most common form of fraud experienced by Australians in the past two years.

Credit card fraud can occur in two ways:

• Card Present Fraud (CP): In this, credit card scammers end up getting the possession of a physical credit card, illegally. Card Present Fraud can occur if someone steals your credit card or obtains it through false pretences, and makes a transaction with the card through an ATM, Point of Sale (POS), or a retail store.

• Card Not Present Fraud (CPN): In this, scammers make transactions through another person's credit card information without being in possession of the physical credit card. Scammers can obtain your credit card details like card number, security code, card holder's name, and expiry date, and then use it for suspicious or illegal online transactions. This information can be obtained through phishing and skimming as well. This accounts for 90 percent of credit card scams in Australia in 2021.

Phishing

In phishing, scammers impersonate a reputable business, customer support, or bank to reach out to you and steal your financial details.

Scammers share malicious URLs that lead to a fake website impersonating as a legitimate business where unsuspecting customers are tricked into entering their credit card details.

In some other cases, scammers may even hack the system of online payment merchants to steal stored credit card information of thousands of users.

Skimming

A credit card skimmer is a device that extracts credit card details through its magnetic chip to create cloned cards. Scammers can obtain your credit card information by attaching credit card skimmers to ATMs, POS terminals, gas stations, and retail store card readers.

Lost or stolen cards fraud

When fraudsters steal or find a lost physical credit card, they can use it to make unauthorised fund withdrawal or purchases. They often continue to use the card until the credit card limit is exceeded or you cancel the card.

The ‘card never arrived’ fraud

The ‘card never arrived’ fraud occurs when you order a new credit card, but fraudsters intercept the card before you obtain it, or they simply steal it from your mailbox.

Credit card application fraud

Scammers who have obtained your personal information through illegal activities can apply for a credit card in your name. They can use your name, address, social security number and date of birth to get a new card without your knowledge. You may not even notice this type of fraud has occurred until you apply for a new credit card or check your credit report for any hard inquiries.

Account takeover

Account takeover occurs when a scammer who has access to your account details impersonates you and changes your credit account password and pin code. If carried out successfully, you as the real cardholder will be locked out of your account either when trying to use physical cards or trying to conduct online transactions.

Credit card fraud might have occurred if:

• You notice unauthorised transactions in your credit card statement.
• You received an alert of transactions you did not initiate.
• You are receiving invoices or receipts for goods you didn't purchase.
• Your credit score has gone down drastically and you see open credit cards in your credit report that you never applied for.
• You are denied government benefits on the ground that you are already claiming the same benefits.

If you notice any of these signs, check your credit card statement or your credit report for fraudulent credit card transactions. In case you end up detecting any fraudulent transactions, promptly alert your bank or credit card company. They should block your card to prevent further fraudulent transactions and cancel out the fraud credit card charges.

You can also report credit card fraud to the police.

Credit card fraud detection is the process of identifying and rejecting suspected fraudulent activity on credit cards with the help of advanced techniques and tools. The rise in the rate of credit card fraud has also given rise to various methods of detecting credit card fraud and preventing it.

Credit card companies and merchant websites have now devised several credit card fraud solutions. They use AI tools and machine learning to recognise credit card transaction patterns and detect irregular transaction attempts.

Credit card detail encryption is an innovative method for reducing fraud. Another method of detecting and preventing ‘card not present’ fraud is the use of CVV.

Credit card providers accord every credit card a unique CVV code that must be input before any online transaction can be authorised. This CVV code can not be stored by merchants and it is only available on physical credit cards. That means even if someone gets access to your credit card details, they still won’t have the CVV code which is required to make an online purchase.

Credit card fraud can definitely hurt your credit score, but it can be remedied if appropriate actions are taken.

When scammers use a stolen credit card without your knowledge and use it up to the available credit limit, it leads to unpaid debts and increasing interests, both of which can affect your credit score. Moreover, if scammers commit identity theft to take out new credit cards in your name, it can also end up hurting your credit score.

This is because a hard inquiry/ hard credit check is recorded in your credit report any time you apply for a new line of credit. Multiple hard inquiries in a short span of time can affect your score. Even if you have a poor credit score, scammers can apply for credit cards for bad credit just to get access to a new credit card and commit fraud.

Therefore, if you detect any kind of suspicious open credit card accounts or hard inquiries on your credit report, make sure to report it back to your credit card provider to get the card blocked and also to the credit reporting bureau to get hard inquiries removed.

There are several credit card security measures you can take to prevent falling victim to credit card fraud.

• Select credit cards that offer added security and privacy for both online and retail transactions. Take a look at our ‘How to choose a credit card’ guide.
• Closely guard your personal information and do not share your credit card details with anyone.
• Turn on credit card or debit card transaction notification on your card issuer mobile app.
• Secure your card against theft.
• Immediately block stolen or lost credit cards.
• Ensure your mobile phones and computer systems are secured against viruses and phishing attacks at all times.
• Only buy online from trusted stores.
• Don't store your credit card details on websites even if you are prompted to do so.
• Conduct monthly bank statement reviews and credit report reviews. Frequent credit report reviews will also reveal any form of a fraudulent transaction.
• If you suspect credit card fraud, you should swiftly notify your bank or credit card issuer to block your account.

Credit card fraud, just like debit card fraud, can be detrimental to you both in short and long-term. It can put you in debt, and credit cards can affect your credit score. To avoid such a financially precarious situation, secure your credit card and monitor your finances. Frequently checking your credit score can aid earlier detection of credit card fraud.

With ClearScore, you can get your free credit score report and check your credit score to monitor your card against credit card fraud.