Did you know that 60% of U.S. credit card owners have fallen victim to fraud at some point? This information from Security speaks to a common challenge: credit card fraud. It means stealing your card information to make unauthorized purchases or withdraw funds.
In this blog post, we’ll explore the most common forms of credit card fraud, talk about its potential consequences for your finances, and go over effective strategies and credit card fraud techniques used to prevent it.
Need support after a scam? Join our community today.
What is Credit Card Fraud?
Credit card fraud is when someone illegally accesses and takes advantage of another person’s credit card details, to make purchases or withdraw money. It is a form of identity theft that has become much more common, particularly in the first half of 2024, as noted by The Ascent.
According to Federal Law (15 U.S.C. §1643), a cardholder’s liability in the event of fraud is limited to $50. Yet, most banks will not charge this fee if the cardholder submits a detailed explanation of the theft through a legal statement. There are many common methods through which credit card fraud can happen:
- Card Not Present (CNP) Fraud: Scammers make online or phone purchases with stolen credit card information, where completing the transaction does not require the physical card
- Phishing Tactics: This ensures that any attempt to access your information from an unfamiliar location can be stopped before it causes any harm.
- Physical Theft: This simple method means taking the credit card itself. Scammers can use the stolen card to receive cash advances from ATMs or make purchases.
- Cloning: In this method, fraudsters copy the data from your card’s magnetic stripe or chip and create a new card that works just like the original. This cloned card is then used to rapidly collect charges before the theft is even noticed.
- Skimming: Criminals use a device called a skimmer, which is placed over the card slot of an ATM, gas pump, or other payment terminals. As you swipe or insert your card, the skimmer records all the details from your card’s magnetic stripe or chip.
- Data Breaches: Large-scale hacks can lead to the theft of huge amounts of personal data, including credit card numbers, from company databases. This information can be used to commit fraud or sold on the dark web for others to use.
What Are the Most Common Credit Card Frauds?
The Federal Trade Commission (FTC) categorizes credit card fraud into two main types: fraud involving new accounts and fraud involving existing accounts. Here’s what’s about each one:
1. New Account Fraud
This type of credit card fraud happens when scammers create fake credit card accounts using someone else’s personal information. They use these accounts to make unauthorized purchases and obtain cash advances with no intention of repayment.
In 2023,new account fraud accounted for 14% of all credit card fraud complaints, according to the CSN Annual Data Book 2023. Victims of this type of fraud may face challenges in cleaning up their credit history and obtaining future credit.
2. Existing Account Fraud
Existing account fraud includes the unauthorized use of current credit card details or account takeovers. Criminals may steal a credit card physically or obtain account information through sophisticated methods such as phishing attacks or installing malware on a victim’s computer.
Once they have access, they can change the account’s contact details and passwords, locking out the legitimate owner. This leads to financial losses and complicates the recovery process, as victims must prove their identity and regain access to their accounts, which can be a very long and stressful process.
What Types of Credit Card Detection Techniques Exist?
Detecting credit card fraud requires the use of smart technology and efficient security measures to spot any suspicious activity. Here’s how these methods work to keep your card safe:
1. Credit Card Security Features
Credit card companies use many tools to prevent unauthorized use, including:
- Address Verification Service (AVS): AVS helps prevent fraud by comparing the address you enter during a transaction against the address your bank has on file for your card. If the addresses do not match, the system might decline the transaction.
This is particularly useful for stopping someone who may have stolen your credit card number from making unauthorized purchases if they do not know your actual billing address.
- 3-D Secure (3DS): Depending on your card, this might be referred to as Visa Secure, Mastercard Secure Code, or another name. This requires an extra password or a code sent to your phone. This way, only someone with access to your phone or who knows your password can make the payment, making theft less likely.
- Card Verification Value (CVV): The CVV is a three-digit number on the back of your credit card. Using the CVV during an online transaction confirms that you physically possess the card, since this number is not stored elsewhere but on the card itself.
2. Risk Scoring
Risk scoring uses rules to help predict if a transaction might be fraudulent:
- Simple Rules: These are basic guidelines that detect possible fraud by checking for unusual patterns. For example, if you typically receive shipments at your home, but suddenly there’s an order shipped to a completely different address, the system flags this as suspicious.
- Velocity Rules: These rules focus on the frequency of events within a specific timeframe. For example, if you try to enter your credit card password incorrectly many times in a short time, the system might lock your account temporarily to stop others from trying.
Have questions about dealing with scams? Contact us for support.
3. Digital Footprinting
This technology improves security and prevents fraud by verifying the authenticity of a device and its location.
- Device fingerprinting: This is like giving each device, like your smartphone or laptop, a unique ID based on its specific characteristics and settings. When you use your device to log into a network, the system checks if it has seen this particular “fingerprint” before.
For example, if your device has been used with your account in the past, it’s more likely that the login attempt is legitimate. This helps prevent someone else from using a different device to access your accounts without permission.
- IP Analysis: This checks the IP address, which is a unique number assigned to your device when it connects to the internet. This technology checks if the location from which your device is accessing the internet matches the usual location from which you log in.
For example, if you normally access your accounts from New York and suddenly there’s a login from another country, the system will flag this as suspicious.
Other Advanced Credit Card Detection Techniques
Machine learning (ML) has improved fraud detection capabilities. Here are some examples to avoid credit card fraud:
- Whitebox Machine Learning: This method allows the system to make easily accessible and understandable decisions. For example, if a transaction is suspicious, the whitebox system can detail the reasons, such as an unusually high transaction amount or a transaction made in a foreign country.
- Blackbox Machine Learning: Processes extensive data and uses complex algorithms to make quick decisions. For example, it can analyze thousands of transactions per second to identify unusual spending patterns or flag suspicious account activities instantly.
Prevent Credit Card Fraud with the CDN Community
Credit cards are still a trusted financial tool for many people, even with the rise of new financial technologies. This is why scammers continue to use fraud tactics to steal personal information or money. Showing the importance of credit card detection techniques for both users and institutions, including banks.
According to Security, 4 out of 5 cardholders admit to at least one risky behavior that makes their accounts more vulnerable to fraud. At Cryptoscam Defense Network (CDN), we’re dedicated to fighting fraud with community and technology. Your support helps us to expand our educational initiatives and grow our efforts.
We Want to Hear From You!
Fraud recovery is hard, but you don’t have to do it alone. Our community is here to help you share, learn, and protect yourself from future frauds.
Why Join Us?
- Community support: Share your experiences with people who understand.
- Useful resources: Learn from our tools and guides to prevent fraud.
- Safe space: A welcoming place to share your story and receive support.
Find the help you need. Join our Facebook group or contact us directly.
Be a part of the change. Your story matters.
Frequently Asked Questions (FAQ) About Credit Card Fraud Detection Techniques
How Can You Tell If Your Credit Card Information Was Hacked?
Some signs your credit card information might have been compromised are:
- Card Declined: Unexpectedly declined card.
- Payments in Other Locations: Charges from places you haven’t visited.
- Strange Purchases: Unrecognized transactions appear on your credit card statement.
- Small Charges: Small, unfamiliar charges may indicate a test by fraudsters.
- Unexpected Purchase Notifications: Alerts for purchases you didn’t make.
- Changed Account Information: Updates to your account details you didn’t make.
- Lower Available Credit: Unexpected reduction in your credit limit.
- New Spam Calls or Emails: Increase in spam communications.
- Missing Mail: Absence of expected credit card statements.
- Data Breach Notification: Alerts about breaches from companies you’ve used.
- Verification Calls: Suspicious calls asking to verify purchases.
What’s the Difference Between Credit Card Fraud and Identity Theft?
The main difference between credit card fraud and identity theft is that credit card fraud is the unauthorized use of your credit card details to make purchases or withdraw money. It is a subset of identity theft and often has a limited liability of $50 for the cardholder.
Identity theft encompasses various activities, such as opening new accounts or lines of credit using your name, stealing your medical information, or committing other illegal acts under your identity
What Should You Do If You Suspect Credit Card Fraud?
If you suspect fraudulent activity on your credit card, follow these steps:
- Contact Your Card Issuer: Report suspicious transactions immediately.
- Lock Your Card: Use your card issuer’s app to temporarily lock your card.
- Place Fraud Alerts: Notify credit bureaus to place fraud alerts on your credit report.
- Monitor Your Credit: Set up credit monitoring to receive alerts on new activities.
- Report to Law Enforcement: File a report with the FTC and other relevant authorities, like the local police department, your bank, or your credit card issuer.
- Check Your Credit Reports: Review your credit reports often to catch any unauthorized activity early.
Photos via Freepik.
