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Types of Credit Card Fraud—Guidelines for Recognizing and Avoiding Fraud

Ashley Ferraro, Product
May 13, 2024
 Min Read
Protect Your Payments With Virtual Cards

With over 400,000 reports filed to the Federal Trade Commission (FTC) in 2023, credit card fraud remains the leading cause of identity theft in the U.S. Although you enjoy numerous protections as a credit cardholder, fraud and managing its aftermath is a taxing experience you’d rather steer clear of. 

It’s easier to avoid credit card fraud when you know what it looks like and how it happens. In this article, you’ll discover:

  • Different types of credit card fraud that are prevalent today
  • Steps you should take if you think you’ve been defrauded
  • Measures you can apply to safeguard your credit card information

What Is Credit Card Fraud?

Credit card fraud is an umbrella term that describes a range of illicit activities related to credit cards, such as unauthorized access and use

If you report the incident in time, your funds are generally protected by law and the issuer. Fraud can still leave a huge impact on your life, causing difficulties such as:

  • Damaged credit score—If the fraudster uses your card information to apply for credit or loans in your name, your credit score may be reduced. While you’re waiting for the issue to be resolved, you may experience limited financial freedom.
  • Risk of identity theft—If the fraudster obtains other sensitive information besides credit card numbers, they may try to steal your identity.
  • Stress and time consumption—Credit card fraud takes a toll on your mental well-being. Resolving it is also often a time-consuming process.

Anyone can become a victim of credit card fraud, but you can reduce the chances of it happening to you by learning about the potential dangers and staying vigilant.

Source: Stephen Phillips

Common Credit Card Fraud Types

Fraudsters leverage various techniques to acquire and exploit credit cards. The most prevalent credit card fraud methods include:

  1. Physical theft
  2. Skimming and shimming
  3. Card-not-present fraud
  4. Account fraud
  5. Application fraud

Physical Theft

Some criminals may pickpocket your wallet to obtain your credit card, but it doesn't have to be stolen to end up in the wrong hands. If you lose your credit card, an unscrupulous individual may find it and attempt to misuse it.

It’s also not uncommon for fraudsters to steal your new credit card from your mail or mailbox. According to CBS’s investigation, more than 13 carriers have been charged with mail theft and fraud over the last few years in New York alone.

Source: Ethan Hoover

Skimming and Shimming

Fraudsters can steal your credit card information unsuspectedly while you’re using the card. Here are four examples of credit card fraud that occurs in this way:

  • Skimming—Skimmers are devices that capture information from your credit card’s magnetic stripe. They are designed to look inconspicuous and are usually placed on remote and unsupervised card readers, such as ATMs at self-service gas stations. 
  • Shimming—Shimmers function similarly to skimmers, but they copy information from newer credit cards that use chip technology instead of magnetic stripes. After skimming or shimming credit cards, fraudsters often forge them, encoding the stolen information onto blank cards.
  • Shoulder surfing—Although a more old-fashioned fraud method, shoulder surfing still happens today. It occurs when the fraudster obtains your credit card or other sensitive information by watching you use an ATM, your phone, or your laptop.
  • PIN capturing—Some fraudsters also install secret cameras or other recording devices to find out your PIN. This method is often used alongside skimming and shimming, and it makes it easier for fraudsters to misuse your credit card at ATMs. 

Card-Not-Present Fraud

Fraud Type How It Happens

Phishing often starts as a scam, but it escalates into fraud as the perpetrator misuses the obtained information. In most cases, they pose as a real person, business, or institution. They may email, text, or call you, asking for your credit card details to resolve a payment issue or verify your account. They may also send you:

  • A link leading to a fake sign-up page or website that can steal your login credentials or credit card details

  • An attachment that can infect your device with malware and steal data if you open or download it

Wi-Fi exploitation
Besides websites, fraudsters can create fake Wi-Fi networks that can spy on your credit card transactions if you connect to them. Some individuals may also use public and unsecured Wi-Fi networks to intercept your transactions and grab your financial information.
Data breaches
Tech-savvy fraudsters can hack the databases of e-commerce websites that contain your credit card information. They may also steal login credentials, get into your accounts, and find out your credit card numbers that way.

Account Takeover

According to the report, around a quarter of adults in the U.S. reported being victims of account takeover in 2023.

Fraudsters can take over your credit card account if they acquire your login credentials through hacking or phishing. They can then make transactions in your name or change the settings to lock you out of the account.

Application Fraud

If fraudsters steal your personal information, such as your name, address, and Social Security number, they can apply for new credit cards in your name, lowering your credit score. This type of fraud is tricky because you may not even notice suspicious activity until you check your credit report.

Source: Karolina Grabowska

What To Do if You Suspect Credit Card Fraud

If you notice potentially fraudulent charges, follow these steps to report them and mitigate the potential impact:

  1. Rule out friendly fraud—Before filing a report, you should ensure the charges didn’t come from a family member. Most issuers won’t allow a chargeback for this type of transaction.
  2. Check your transaction history or statements—If the charges were fraudulent, reviewing recent card activity will help you understand the extent of the problem and gather the information that will be valuable for the investigation.
  3. Reach out to your credit card issuer—Contact your card issuer immediately upon confirming that you’re dealing with credit card fraud or noticing that your card is missing. The sooner you report the problem, the less liable you’ll be for any losses that result from it. The credit card issuer will guide you through the dispute and resolution process. They’ll investigate your case and issue a refund for the losses if you’re eligible.
  4. Notify the credit bureaus—If you have reasons to believe your identity was stolen, contact the three credit bureaus to prevent fraudsters from applying for credit in your name.
  5. Monitor your account—Once you’ve reported the problem, keep monitoring your account activity to catch and report any developments quickly.
  6. Update your security measures—You should also change your passwords and revise your current security measures. 

How To Protect Yourself From Credit Card Fraud

Before using your credit card in public, you should check the card reader for signs of tampering, such as:

  • Ripped security seal
  • Hard-to-push buttons
  • Loose fit of the plastic covering

To avoid card-not-present fraud, you should use a strong and unique website for each account and enable two-factor authentication wherever possible. If you receive an unexpected or suspicious message or email requesting your credit card information urgently, it’s best to ignore it, especially any links or attachments they include.

It’s advisable to make online transactions only when connected to a secure mobile or private Wi-Fi network. Remember to also check the website's web address to ensure it’s not a scam copy. Even if the merchant and the website are legitimate, you should refrain from saving your payment information.

All these steps are necessary to protect your funds and identity. Still, your safest bet is to never give away your actual card information in the first place and use virtual cards for your online payments. These cards are connected to your real account or payment card but mask the financial information with random card numbers at checkout. With an independent virtual card provider like Privacy, you can get various additional features to make your payments more secure and convenient.

Source: cottonbro studio

Minimize the Risk of Fraud With Privacy Virtual Cards

Privacy Virtual Cards give you more control over your online transactions. You can connect your debit card or bank account to Privacy and generate virtual cards to add a security layer around your transactions. In case hackers breach the servers of one of the merchants you shopped at, they will be able to access only your unique Privacy Card number and not your actual financial information.

Your payment details are safe with Privacy as it employs high-level security protocols such as:

  • Two-factor authentication (2FA)
  • Transaction monitoring
  • Regular third-party audits

Privacy Cards are issued by Visa® and Mastercard®, enabling purchases with most merchants and websites that accept these payment methods.

Privacy offers two types of virtual cards:

Single-Use Card
Merchant-Locked Card
This card type closes automatically minutes after you complete the first purchase. This makes it useless to potential fraudsters who may try to steal it. It’s ideal for transactions on unfamiliar websites.
This card type “locks” to the first merchant you purchase at, preventing transactions at all other locations. It’s an excellent choice for your go-to shopping sites and subscription services.

Privacy Cards can also be paused or closed to block unexpected charges. You can also set spending limits on them to make sure the seller can't charge you for more than you agreed to beforehand. 

Privacy—Additional Benefits, Sign-Up Process, and Pricing

Besides protected transactions and bank-level security, Privacy offers a seamless shopping experience thanks to its browser extension. Available for Chrome, Firefox, Edge, Safari, and Safari for iOS, the extension autofills virtual card details at checkout, saving you from looking for your wallet every time you want to make an online transaction.

By installing the Privacy mobile app on your Android or iOS device, you’ll be able to generate and manage your Privacy Cards on the go. 

To sign up for Privacy and enjoy next-level payment safety, you only need to follow these four steps:

  1. Create an account
  2. Enter the information required to verify your identity
  3. Connect your debit card or bank account
  4. Request and create your virtual cards

With the Personal Privacy plan, which is free for domestic transactions, you can generate 12 Privacy Cards a month and enjoy all the features listed in this article. For more cards (up to 60 a month) and benefits such as fee-free foreign transactions and priority support, choose the Pro ($10/month) or Premium ($25/month) plan.

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