Identity Theft Personal Finance

How Credit Card Fraud ACTUALLY Works

Eric Rosenberg
Written by Eric Rosenberg

Consumers lost over $16 billion from fraud and identity theft in 2016, according to CNBC. Credit card fraud makes up a good chunk of that number, and continues to cost consumers time and money every day. To better understand how to avoid credit card, it is a good idea to understand how credit card fraud works and the tactics fraudsters use to make charges on your account and drain bank accounts. Read on to learn how credit card fraud works so you know how to avoid it.

What is credit card fraud?

Credit card fraud, according to Consumer Action, “is a wide-ranging term for theft and fraud committed using or involving a payment card, such as a credit card or debit card, as a fraudulent source of funds in a transaction.” In layman’s terms, credit card fraud is when someone who is not you tries to use your credit card without your permission.

According to CreditDonkey, 46 percent of Americans have dealt with credit card fraud in the last five years. That is nearly half of all Americans! Odds are, if you have a credit card, you’ve run into fraud, or at least a fraud alert, on your account.

Card present fraud

For many years, the most popular type of card fraud was “card present” fraud. This means someone takes your card, or a copy, to a restaurant or store and uses the card for a transaction they make in person. For many years, the only way to do this was to steal someone’s wallet, purse, or credit card. The bad guys would need physical possession of your card to commit fraud, but technology made it easier for criminals to commit card fraud.

For a low cost, criminals can buy a device called a “skimmer” that can copy the data from a magnetic stripe on a card. The pocket sized devices can capture a card’s data with one swipe. Restaurants are notorious for this, as the server takes your card away from your view for a period of time when they can use a skimmer to steal your card data while running your card to pay the bill. Gas stations and ATMs are also ripe for skimmer devices that capture your data when you insert the card into the machine.

Security chips, recently added to most cards in the United States, help prevent this type of fraud. Cards without a chip are still easy to skim, but with a security chip, criminals can no longer easily duplicate a card and use it for purchases around town. This is pushing the criminals to the internet as their next source of fraudulent profits.

Online purchase fraud

EMV security chips only work at terminals that can read a chip. Because you type your credit card information into a computer for online purchases, security chips do not protect consumers from online card fraud.

Getting people’s credit card data is a lot easier than it should be. Even without skimmers, hackers have stolen account information for many millions of accounts. From major retailer system breaches to the massive Equifax breach in 2017 that revealed private account details for 143 million Americans, we still have a lot to worry about.

About the author

Eric Rosenberg

Eric Rosenberg

Eric Rosenberg is a finance, travel, and technology writer originally from Denver, Colorado living in Ventura, California. When away from the keyboard, Eric he enjoys exploring the world, flying small airplanes, discovering new craft beers, and spending time with his wife and baby girl. You can connect with him at his own finance blog Personal Profitability.

1 Comment

  • There is a simple and foolproof way to stop all online card fraud (except 1 and that’s the fraudsters have a gun to your head)
    And it can be implemented without much effort.

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