Credit Repair

What is Credit Fraud?

Credit fraud is when someone steals or takes over one of your accounts and uses it for their own gain. The fraudster may be able to make a purchase, withdraw money or transfer funds before you know what happened. Credit fraud can also describe identity theft — when thieves use your personal information to open fraudulent accounts.

Thankfully, you generally aren’t liable for unauthorized purchases on consumer credit cards. Many card issuers networks offer zero liability protection to cardholders as long as you report the unauthorized charge as soon as you notice it.

However, you may be liable for some of the losses due to other types of credit fraud, such as when a thief uses your debit card for unauthorized transactions. But even if you’re not liable, dealing with credit fraud can be a time-consuming nuisance.

How does credit fraud happen?

Fraudsters can obtain your information in various ways. Credit card fraud can occur when someone steals or finds your purse or wallet and gains access to your credit card information. You’ll likely notice the loss fairly soon and can cancel or freeze your accounts, but the thief may be able to use your cards in the meantime.

There are also less detectable crimes, such as credit card skimming—when a device is placed in a point-of-sales system (such as at a gas pump) or ATM and copies your card’s information when you swipe it. Your card’s information could also be stolen if you use it on an unsecured website or Wi-Fi network, when a merchant is hacked or if someone makes a copy.

In some cases, you may even give away your account information without realizing you’re being tricked. Fraudsters send out phishing emails that look official but actually direct you to one of their websites. The website then prompts you to enter your account or personal information, or to download software that infects your computer. Alternatively, fraudsters may call and try to get you to disclose your personal or account information over the phone.

Once thieves get your information, they can use it in various ways. They could use your card’s information to purchase goods and services, buy gift cards or take out a cash advance. If they have your bank account information, they may be able to make an electronic transfer to their account. They could also sell your personal information to other scammers.

4 signs you’ve fallen victim to credit fraud

If you keep an eye out, you may be able to quickly detect when your information is compromised and take steps to shut down accounts. Here are four signs to watch out for:

1. You receive a notification from your financial institution. Banks, credit unions and credit card issuers often have systems in place to detect and prevent credit fraud. For example, your credit card transaction might not go through if you’re trying to make an abnormally large purchase or if you’re traveling far from home.

Your card issuer may call or text you, asking you to confirm you’re making the transaction. If you receive a notification for a transaction you didn’t initiate, that may indicate someone else is trying to use your account.

Make sure you keep your contact information up to date to ensure you’ll receive these notifications.

2. You notice unauthorized charges on an account. Make a regular practice of reviewing all your account statements for transactions you don’t recognize. If you see one, that might be a clue that the account was compromised. Contact the financial institution right away to report the transaction, get a new card and change your account’s login information.

Connecting multiple accounts to budgeting software can make it easier to monitor your accounts for unauthorized transactions. Some financial institutions also let you sign up for alerts whenever certain conditions are met, such as purchases over $X amount, or when your balance falls below $X.

3. Your credit report changes. Monitoring your credit reports for changes can also help you notice credit fraud early on. Changes in your personal information, such as your address, could be a sign that someone else used your information (but a different address) to apply for credit.

A new hard credit inquiry on one of your reports could also indicate someone tried to open a new account using your information. Or perhaps you notice an entirely new account appears on your credit report, and you don’t recognize the lender.

If you notice any unusual changes, contact the credit bureau to dispute the incorrect data and contact the creditor to make sure an account wasn’t opened in your name.

4. You get a bill or collection call for an account you don’t recognize. Some accounts don’t get reported to the credit bureaus, but you could still get a bill or collections call. These could indicate you’ve already been a victim of credit fraud. However, they may also be their own type of scam. For example, the caller may be trying to get you to make a payment on a debt that was never owed. Or, the caller gets you to disclose personal or financial information that they can then use or sell.

Don’t pay bills for accounts you didn’t open or share personal or financial information over the phone. You can take several steps to verify a debt collector’s claims and legitimacy, such as asking for their address and contact information and requesting a written debt validation notice.

How to protect yourself from credit fraud

Scammers can attack on different fronts and defending against credit fraud can require a mix of physical, digital and psychological actions. Some will rarely require your attention, while others are an ongoing process. Here are a few to consider:

  • Sign up for credit monitoring. A credit monitoring service will monitor your credit report(s) for significant changes and send you an alert when it detects one. There are free credit monitoring services, such as MyLendingTree, that generally monitor one or two of your credit reports (My LendingTree monitors TransUnion credit reports). To get full coverage of your Equifax, Experian and TransUnion reports, sign up for several free services or sign up for a paid credit monitoring service.
  • Freeze your credit reports. You can freeze your credit reports with each of the three credit bureaus online—Experian, Equifax and TransUnion. Once frozen, creditors that don’t already have a financial relationship with you generally can’t access your credit reports.
    As a result, it could be much harder for someone else to open an account using your credit profile. When you do want to open new accounts, you can unfreeze your reports using a PIN. Freezing and unfreezing your reports is free.
  • Check for card skimmers. Before using an ATM or card reader, check the machine for a card skimmer. You can look for out-of-place colors or materials and misaligned edges on the machine, or even grab and shake the device a little to see if any plastic pieces start to come free. These can all be signs that a skimmer was installed on top of the machine.
  • Shred financial documents. If you have any paper documents with personal or financial information, you may want to shred or tear them up before throwing them away. These could include receipts, preapproved credit offers, old checks or credit cards, bank or loan statements and documents from your doctor.
  • Don’t share personal information. If you receive a phone call, mailed letter or email with official letterhead, don’t share your personal or financial information before verifying the sender’s authenticity. Even if the message looks like it’s coming from a financial institution you use, call their customer service line to confirm that they sent you something.
  • Don’t write down or carry your PIN or SSN. Keep as little information as possible in your wallet or purse. Don’t carry your Social Security card and don’t write down and carry your debit card’s PIN. You may even want to carry a copy of your health insurance card rather than the original.
  • Use unique logins for each financial account. You don’t want a data breach at one company to put all your financial accounts at risk. Creating unique usernames and passwords for each of your financial accounts (and other accounts, if you’re up for it) can help keep these accounts secure. Using a password manager to generate and store usernames and passwords can make this much easier.
  • Enable two-factor authentication on your accounts. Two-factor authentication (2FA) adds an extra layer of security to your online accounts. With 2FA enabled, you may need to enter a password and a code that’s sent to your phone or email address before logging into your account.
  • Stay away from your finances while on public Wi-Fi. Public networks may not be secure and it’s generally best to avoid making purchases or logging into your online accounts while you’re on an open network.

What to do if you’re a victim of credit fraud

What if it’s already too late—you’ve noticed unauthorized charges on your account or a new account was fraudulently opened in your name? The steps you want to take can depend on the type of credit fraud, but will generally include:

  1. Contact the financial institution. Whether you notice an unauthorized credit card transaction or transfer from your bank account, the first thing you want to do is contact the company. Let it know that you didn’t authorize the transaction and follow their lead on the next steps. You’ll want to close fraudulent accounts and may need to get new credit or debit cards. You might also want to change your login information and debit card PIN for your impacted accounts.
  2. Report the crime to the authorities. You can report your case to the Federal Trade Commission (FTC), which will then create a customized recovery plan for you with pre-filled forms to send to financial institutions. The FTC will also give you an Identity Theft Report, which they say you can use instead of a police report in some cases. For example, you can use an Identity Theft Report to request an extended fraud alert on your credit reports (which lasts seven years rather than one). You may want to also contact your local police department to file a police report.
  3. Add a fraud alert on your credit reports. Next, contact one of the credit bureaus to place a fraud alert on your credit file. The bureau will contact the other two bureaus, and your fraud alerts will stay on your reports for a year. When your report has a fraud alert on it, creditors will take an extra step to contact you and verify that you submitted an application before opening a new account. You may also want to freeze your credit reports, as discussed above.
  4. Correct your accounts. You may need to contact a different branch of the financial institution to correct and reverse the unauthorized transactions. If the companies don’t send updated information to the credit bureaus, you may also want to dispute any accounts or marks on your that are on your credit reports related to the fraud.
 

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