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Credit Card Fraud: How It Happens and What to Do About It

It may start off practically unnoticeable, with a few charges here and there. Over time, though, your credit card statements begin to reflect purchases in places you're quite sure you've never visited. Items show up that you know you didn't buy. You start to notice charges from distant gas stations, restaurants and even online purchases. Is it just an oversight on behalf of your credit card company, or are you a victim of credit card fraud?

Credit card fraud has unfortunately become a huge problem, and it’s one that is not well publicized. In fact, credit card companies do not offer statistics of fraud for the earnest reason that consumers may simply lose confidence in the entire system. The truth is thieves can actually use stolen cards quite easily because few cashiers bother to compare the signature (which can be easily forged anyway), and it is impossible to physically verify the owner of a credit card during an online transaction.

How Did They Get Your Credit Card Information?

Most people envision high-tech methods of data hacking and card replication using expensive machines, and these methods do exist; however, thieves steal your credit card information more often using less impressive methods. Here are a few ways your credit card information may be stolen.

  • Good ole’pick pocketing - A thief picks your pocket and goes on a wild spending spree, hoping to use your card as long as possible before you realize and report it stolen. These items can then be sold at pawn shops or, more frequently, as online auctions.
  • Dumpster diving - Thieves can get all sorts of personal information right out of your trashcan. Monthly statements and receipts are essentially a thief’s meal ticket because your account statement has your name, address, and credit card number, which is all a criminal really needs.
  • Skimming - The waitress at your favorite restaurant or grocery store may take your card at the time of payment, run it through the register, and then run it a second time through a magnetic reader. This reader will store all your information, which can be used at a later time to manufacture a copy of the card and sell it to a criminal ring.
  • Shoulder Surfing – Standing in line at a store and looking at your credit card information as you hand it over. This is more common for debit cards, where a thief can memorize your card number and watch you enter your PIN.
  • Cell phone cameras – An easy method is for an employee with your card to simply take images of the front and back of your card for use at a later time.
  • Telephone scams – Scammers posing as charities or other organizations may ask you for a donation using your credit card over the phone. Or, if they are more inventive, they may pose as the security department of your credit card company announcing that your card may have been stolen, and that he or she needs to verify the credit card number in order to open a proper investigation.
  • Card tumbling – Computer programmers run algorithms to generate a correct sequence of numbers that it will validate. That number could very well be yours.
  • Phishing – Email scams that purport to be from your bank or other institution, warning you of a security breach and asking you to login to the website (using the link provided, of course) and confirm your personal information.

What Do You Do Now?

Immediately upon suspecting credit card fraud, you should call your credit card company and close the account. Go through your statements with a fine-toothed comb to find the first unauthorized purchase and continue on through the most recent activity. It can be easy in some cases to prove which ones are unauthorized due to the location in which the card has been used. Online purchases may be a little more difficult to track down, but thanks to the ISP address on all computer internet connections, you may even be able to nail down the exact location of the thief.

All major credit card companies have a division dedicated strictly to fraud. Working closely with a representative will help to erase the unauthorized charges. It may not be a bad idea to utilize the company's to ensure this doesn't happen to you again. Most institutions have a program that alerts you whenever larger purchases are made or even many smaller ones in odd locations.

How Much Damage Are You Liable For?

While having your card stolen can be nerve wracking and time consuming in terms of fixing the problem, fraud victims are not liable for the unauthorized charges. As soon as you are aware that your number has been stolen, a call to the card company is imperative to making sure it stops that moment. You won't be liable for any other unauthorized charges going forward once theft has been established. The card representative will help to go down the list of unauthorized purchases, erase them and adjust your statement accordingly.

By U.S. law, you are responsible up to a limit of $50 for fraudulent purchases; however, most companies will waive this in the name of good customer service. Upon first receiving your card there is a section within the terms and conditions that discusses fraud liability. Check with your credit card company's fraud protection policy to find out if you are liable for the fee.

Unfortunately, merchants are on the hook for fraudulent purchases, and everybody eventually pays due to higher retail prices and higher insurance premiums.

How Can You Protect Yourself?

Credit card fraud, while nerve wracking and violating, is one of the easier crimes to fix and prevent. There are steps you can take to prevent this form of fraud from ever happening again. And if you have never been a victim, you can follow these same steps to keep from becoming one:

  1. Never give your account information over the phone, unless you are the one who has made the call to a reputable company. If you receive a phone call from someone claiming to be from your bank or card company and they ask for your information, let them know you will phone them back at the number on the back of your card. Companies will have your information, so they have no need to ask for it. The same goes for emails. Delete these immediately.
  2. Don't make an online purchase from a site that isn't secure (shown by a lock at the bottom right of your screen). Hackers can retrieve your information electronically after you press “Submit” and the information flows through cyberspace.
  3. Sign the back of your cards as soon as it arrives. Some people would rather not due to the easy way thieves can copy a signature. If you prefer not to sign it, at least write “See Photo I.D.”in the signature line. A blank signature box is a thief’s heaven, as they can simply write your name on the credit card with their own handwriting!
  4. Shred all credit card or bank statements before throwing them away. For extra precaution, you may want to consider splitting up the paper and throwing it away in separate trash cans so thieves can't fit the pieces together.
  5. Save your receipts in a safe place and use them to reconcile your monthly statements. Report any and all charges that were not made by you.
  6. Destroy all receipt carbons. Thieves can easily extract account numbers from the carbons along with the expiration dates.
  7. Make sure you get your card back as quickly as possible if you use it to make a purchase. Note the retail establishments such as restaurants where your card is hidden from view. If suspicious purchases are later made, you may be able to locate where the theft happened.

Being a victim of credit card fraud certainly isn't pleasant, but it can be avoided when the right precautions are taken. The wide-ranging frequency of the crime has made fixing the damage a lot easier, and new security methods such as PIN numbers and photo ID are becoming common. Calling your credit card company immediately upon becoming aware of unauthorized activity will help set the ball in motion for stopping the fraud in its tracks. Above all, arming yourself with information and being proactive is the best way to ensure the thief's joy ride with your card swiftly comes to an end.

on Sun, 2008-12-14 16:00