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How to recognize and prevent credit card fraud

Credit card fraud is a serious risk to both individuals and businesses.

Despite measures such as mobile wallets, chip cards and near-field communication technology, consumers are still at risk of credit card account compromise.

Below, we’ll explain what credit card fraud is, the steps you can take to keep your card safe, and what to do if the worst happens and your card is stolen.

What is credit fraud?

Credit card fraud is when someone makes an unauthorized purchase on your credit or debit card account. It could be that someone you know took your card and made purchases without your permission, or it could be that a stranger obtained your credit card number or physical card.

Credit fraud can also occur through digital payment methods such as ACH, electronic funds transfer or mobile wallets – although Google Pay and Apple Pay are among the safest payment methods available.

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American Express recently conducted a survey on how U.S. Millennials and Generation Z view fraud. Both age groups (69% of them) are more concerned about fraudulent charges on their bank accounts than they are about someone hacking their social media profile.

No matter what age you are, you can keep your credit cards and related accounts safe if you know what to look for and what to do if one of your cards is stolen.

How does credit fraud happen?

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

  • If the e-commerce site you shop from gets hacked, your credit card number could be stolen
  • Someone might dig through your trash to find the account
  • If you log in over an unsecured Wi-Fi network, someone might be able to hack your account
  • If you use the magnetic strip on your credit card to make transactions, thieves can use a skimmer connected to a point-of-sale payment terminal to access your credit card information

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How to spot credit fraud?

Banks have taken specific steps to identify and prevent credit card fraud. Your bank or credit card provider may call you if they detect unusual activity on your account.

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For example, let’s say you live in New York and don’t notify your bank that you’re going on vacation. If a bank detects card activity from South Carolina, it may place a hold on your card or contact you via phone, email, or text message to ensure the authenticity of the purchase.

Your bank or related financial institution may also contact you if it becomes aware of an unusually large purchase or multiple purchases that are inconsistent with your typical spending habits.

Additionally, you can set alerts for purchases over a certain amount. But be aware that thieves will often process a small payment first to see if they can get away with it. You can also set up your account so that you are notified of any purchases, regardless of the amount.

Finally, reviewing your credit card statements or checking activity online can help you spot credit fraud before it happens.

Related: Credit card fraud: How to spot and report it

How to prevent credit card fraud?

The first step to preventing credit card fraud is realizing that it can happen to anyone, no matter how savvy they are. In fact, if you make a purchase through a secure, reputable e-commerce site that later suffers a major data breach, a thief could gain access to your card information.

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It happens. But there are some steps you can take to protect yourself:

  • Whenever possible, use EMV (contact payment cards developed by Europay, Mastercard and Visa, now a global standard) chip card, NFC “contactless” payment or mobile wallet to pay.
  • If possible, avoid using card payments at businesses that only have a magnetic stripe payment system.
  • Shred all your credit card statements before throwing them away.
  • Use a secure wireless network when shopping online or accessing your financial accounts.
  • Set alerts so you know if your card has been compromised.
  • Do not provide your card information to anyone.
  • Password protect your smartphones and tablets.
  • Monitor your credit cards and other financial accounts frequently.

“Increase your mobile security: Use strong and unique passwords for each of your online accounts and change them regularly,” said Rajat Jain, senior vice president of risk and information management, fraud and banking risk at American Express. Help avoid account compromise. “When possible, download the app and enable two-factor authentication for your online accounts, which adds an extra layer of security by requiring a code, fingerprint, or device to verify your identity. Also, be wary of online Phishing emails or messages, and do not click on any links, open any attachments, or provide account or personal information to parties you are unsure of.

What is the difference between credit fraud and identity theft?

Some people use the terms credit fraud and identity theft interchangeably. Credit fraud is indeed a form of identity theft, but credit fraud is typically limited to breaches of specific accounts rather than your entire credit file. Credit fraud can be costly and time-consuming for victims, but recovering from a single incident of credit card fraud is much easier than dealing with an identity theft problem.

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If your identity is stolen, criminals or hackers can not only access your financial information, but also use your credit cards or accounts, and open new accounts in your name.

Once a thief has your Social Security number and address, they can apply for a loan, apply for a mortgage, and even get insurance (such as health insurance or car insurance) in your name. When this type of crime occurs, it is called “real name fraud.”

Solving an identity theft case involves tracking down all the ways the thief used your information, proving that you didn’t open fraudulent accounts and closing them. Recovering from identity theft can take years.

Related: Credit Card Fraud vs. Identity Theft—How to Tell the Difference

What should I do if I am a victim of credit fraud?

Fortunately, recovering from credit card fraud is easier than solving an identity theft case.

If you find yourself the victim of credit fraud, the first thing to do is contact your bank and report the fraud charges. Check your statement to make sure any fraudulent charges are reported, and make sure you can account for every purchase you’ve made with the card in the past two months or so.

Under federal law, you are not responsible for fraudulent credit card charges exceeding $50 as long as you report it within 60 days. Visa, Mastercard, American Express and Discover all have zero-liability fraud policies. If you report fraudulent charges quickly, you may not have to pay any fees.

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Likewise, the Electronic Funds Transfer Act limits your liability for debit card fraud to $50 if you report the charge within two business days, or $500 thereafter. Your credit card issuer may recommend that you file a police report of fraudulent activity.

If a thief steals credit card information from one of your accounts, they may also have access to another account. Therefore, check all your accounts for fraudulent activity as well.

Finally, change your passwords on any financial accounts and e-commerce sites (such as Amazon) where you may store your credit card information.

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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 doesn’t progress beyond credit fraud into identity theft.

With the advent of mobile payments, EMV chip cards and contactless payment systems, security measures are increasing and thieves are becoming more creative.

Keeping an eye on your accounts and acting quickly when you notice unusual activity remains the best way to avoid the stress and hassle of dealing with credit fraud.

RELATED: So you fell for a scam: 5 steps to take when your personal information has been compromised

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