How to Prevent Credit Card Fraud and Unauthorized Transactions

Estimated read time: 11 minutes

Credit cards have risks as well as rewards.

Having a credit card is vital to modern life, (if you don't believe me, try booking a rental car or hotel without one).

But when you have a credit card, you're also vulnerable.

The fact is, credit card fraud in the USA is on the rise with no solution in sight, and it's a huge pain to deal with.

Especially when you're the victim. I know firsthand, because it happened to me.

Spending hours on the phone with customer support trying to prove a purchase was fraudulent can be a big headache.

The potential for financial loss and a possible negative impact on your credit score mean the stakes are high when you're dealing with credit card fraud.

Thieves have more opportunities than ever to steal your credit card information and make fraudulent purchases.

Skimmers, wireless card readers, data breach hacks, and phishing malwares are the high-tech weapons used against credit cardholders in our digital age.

Credit card skimmers are very hard to detect and are found everywhere from gas stations and department stores to restaurants and ATM machines.

Everyday, my research helps people decide on the right credit cards for their needs, but I also think it's important for me to educate about the risks these cards carry and how to minimize them.

Although you'll never be 100% safe from credit card fraud, there are certain important precautions you can take to reduce your risk of getting victimized and there are steps you can take to minimize the impact on your life and finances, in case the unthinkable happens.

Learning how to prevent and respond to unauthorized transactions will not only protect your financial standing, but save you a lot of stress in the future.

Common Types of Credit Card Fraud

Thieves can be very creative when it comes to credit card fraud

People have come up with all sorts of creative ways to make money, but unfortunately, some of them are less ethical (and more illegal) than others.

Methods for obtaining credit card information range from your run-of-the-mill mail theft to inventing new technologies to lift data when your card is swiped.

A stolen card can be used immediately. Sometimes a pickpocket can steal your wallet without you even noticing.

Their window for using the card for fraudulent purchases is the length of time it takes for you to discover it missing and report it to your credit card issuer (who will cancel it).

Cancel a lost card ASAP. If you lost your credit card, or even suspect you might have lost it, you need to cancel it right away.

Whoever finds it can use it for fraudulent purposes if it's still active.

Account takeovers leave you helpless. Sometimes fraudsters can discover your password and get into your account settings.

They'll change the password and lock you out until you can prove what's happened, and by that time, dozens of charges will have been made on your account.

Skimming can happen anywhere your card is swiped. The practice known as "skimming" involves fraud artists obtaining the data from your card's magnetic strip.

Skimming devices can be installed anywhere cards are read, including ATM machines, point-of-sale credit card processors, and gas station pumps.

Other times, some dishonest store employee processing a card for a transaction may also run it through a second machine designed to skim its data while you're not looking.

If the card was in the mail, it might have been stolen. Receiving new or replacement credit cards through the mail is a vulnerable situation.

All someone has to do is get access to your mailbox, and then they can get their hands on your card, activate it, and start spending.

Application fraud means someone is opening a new credit card in your name. Fraudsters steal personal information through documents like utility bills and bank statements, then they use it to apply for a new card or personal loan in your name.

Once the account is opened, they can spend or withdraw up to the full credit limit, then you are on the hook for the bill (until you can prove it wasn't you who did it and you were victimized).

Since no one yet's footing the bill for the fraudulent act, your credit score will be damaged until you're able to resolve the situation with the credit bureaus—each one separately.

This is where being a victim gets time-consuming.

Fraudulent "card not present" transactions are becoming more and more frequent. Whether it's by mail, over the phone, or over the internet, there are many scenarios where people buy things with a credit card when they aren't there in person.

Unauthorized transactions can be made with your credit card info using these common formats, and the items are delivered elsewhere or intercepted at your address.

Ways to Prevent Credit Card Fraud and Unauthorized Transactions

Preventing, monitoring, and responding quickly to fraud are all key

While no credit card account is completely immune to being stolen or used without authorization, there are things you can do to minimize and respond to risk.

Check for card skimmers at the ATM or gas pump. Self-service kiosks and ATM slots are ideal places for crooks to install credit card skimmer devices.

These devices fit on top of the existing credit card reader and pull your credit card's information while you're using it for payment.

The devices will either store the info to be retrieved later or send it via Bluetooth to a nearby computer.

According to police, the best thing to do is to tug or pull on any card reader you're using to make sure it doesn't have a skimmer installed over it.

When in doubt, report your concern to the authorities and look for another terminal.

Keep your cards safe. To prevent theft, never let your wallet or purse out of your sight.

Shred any documents with your credit card info on them. It's a good idea to invest in a shredder to destroy documents with your credit card or personal information on them.

Credit card thieves have been known to sift through garbage to obtain the information they need to use your card or apply for a new one in your name.

Don't leave blank spaces on receipts. When you're signing off on a credit card transaction, stroke a line through (or write "$0" in) empty spaces so no one adds to the bill later.

Never give credit card info over the phone (unless you made the call). Some credit card "phishing" operations call you at home and try to trick you into telling them or changing your card information.

If you get a call like that, hang up and call your credit card issuer directly.

It's highly likely you'll discover that the call wasn't legit.

Be safe online. When you're shopping over the internet with your credit card, it's super important to look at the left of the browser's URL address bar.

If the site can be trusted, there will be a little graphic of a locked padlock and the word "Secure."

Another method is to use PayPal, which lets you pay for online transactions using your credit card without sharing your credit card data with the vendor.

Install antivirus protection (especially if you do online banking). Another common form of phishing is through malware, which can infiltrate your computer and send your personal info to thieves.

Antivirus software detects and quarantines malware and other viruses designed to steal information like banking passwords before they can get installed on your computer.

Keep your passwords secure. Don't use "1234" or "password" as the password for your credit card account. Get creative and wordy.

It's also not a good idea to use the same password for everything, as stealing it once would mean gaining access to all of your accounts.

Also, never write down or leave your PIN in the same place as where you store your card since you don't want a thief to have both your card and your PIN.

Report any lost or stolen cards right away. If you've lost your card (or even if you're not sure exactly where it is), you need to report it right away.

Your credit card issuer will block the account so unauthorized transactions can't be made.

Make a list of your credit card numbers and the phone numbers you need to contact in case the cards are lost, and leave the list in a secure yet easy-to-access place.

Check your credit card statements regularly for suspicious charges. Often the way people discover unauthorized transactions is when they show up on their monthly credit card statements.

If you don't check your statements, you could end up paying for unauthorized transactions without even knowing it.

Request your credit report. If someone used your identity to set up a fraudulent credit card account, it will show up on your credit report and hurt your credit score.

There are lots of ways to get your credit score for free, and everyone is entitled to one free copy of their credit report per year.

Pull yours and check to see if there are any suspicious looking purchases that you can't recall.

If so, you may have been a victim of fraud.

Cancel cards that never showed up in the mail. If you ordered a new card and it didn't show up within a couple of weeks, there's a good chance your mail was stolen.

Call your credit card company and ask it to cancel your card immediately.

What to Do if You Notice Unauthorized Charges

Here's what to do if you discover a purchase you didn't make

There are right and wrong ways to use a credit card, and this applies to resolving unauthorized transactions too.

When you find a suspicious or unauthorized transaction on your monthly credit card statement, look closely at the whole statement (including other recent statements) to see if there are any other dubious charges.

Write down all the charges that you didn't authorize, including the dates the transactions were made, the name of the vendor, and the amount charged.

Check with family first. Before you report the suspicious transactions, talk to additional card users like a spouse or other family members.

There's a good chance they made the purchases without you being aware.

Report immediately to the credit card company. Contact the customer service number for your card and let them know exactly how it has been breached.

You can either find the number on the back of your card, on your credit card statement, or via the "Contact Us" link on their website.

Give the phone agent all of the information you have, explaining the situation and your need to dispute the charges.

Document everything. Follow up on the phone call with a letter of dispute, to further ensure your rights are protected.

Typically, the company will cancel the card immediately and issue you a new one.

Try to resolve through the merchant. If the unauthorized transaction happened through online giants like Amazon, iTunes, PayPal, or eBay, you can often contact the sites directly for dispute resolution.

Know your rights. No matter how much the charge was for, you can only be held liable for $50 if the purchase was made before you reported the unauthorized transaction.

If you report the fraud within 2 days, the max you'll be liable for is $50, but if you miss the two-day deadline and report within 60 days, you could be on the hook for $500.

Change your passwords and PIN. You should change your passwords or PIN codes for all your cards and your accounts, not just the one(s) with the unauthorized transactions.

Wait for the credit card company to confirm. It might take the credit card company 2-3 weeks to investigate the unauthorized transaction.

Once the crime has been confirmed, the credit card issuer should either remove the unauthorized transactions or issue your account a "chargeback" refund.

Check your credit report for any impact. Once the situation has been resolved, request the annual free copy of your credit report and look it over very closely.

If your credit score has been unfairly penalized, contact each of the three credit bureaus (Experian, TransUnion, and Equifax) directly to correct the report.

Credit Card Fraud vs. Identity Theft

Both are bad, but ID theft can be much worse

When it comes to telling the difference between credit card fraud and identity theft, the main factors are the size and scope of the crime.

Credit card fraud usually doesn't go beyond two—three small charges.

Identity theft, on the other hand, can be much broader.

Identity thieves won't just have your credit card info, but also personal data like your Social Security number, date of birth, and other sensitive identifying information.

That's a lot of potential for damage.

Identity thieves won't just have your credit card info, but also personal data like your Social Security number, date of birth, and other sensitive identifying information.

That's a lot of potential for damage.

Financial liability for ID theft. With credit card fraud, the most you can be liable for, by law, is $50 (if reported within 2 days) or $500 (if reported within 60 days).

Identity theft is more pervasive and your liabilities could span into unauthorized utility bills, phone company bills, insurance companies, government records, and more.

It can be much more difficult to get fully compensated for losses associated with identity theft than credit card fraud.

The impacts could last your lifetime. If your identity is stolen, you might spend the rest of your life dealing with the different accounts that pop up in your name without your authorization.

It can take years to resolve disputes or recover from a bad credit score, and you could even end up in court.

Credit card fraud is usually limited to one account, and it can be cleared up in a matter of weeks or days.

Prevent unauthorized transactions to avoid the headaches of credit card fraud

The best way to stop a credit card transaction you didn't authorize is to prevent it before it ever even happens.

Guard your credit card and password information like your life depends on it—because it does!

Monitor your credit card activity and keep a close eye on your monthly statements for suspicious charges.

Use credit or debit cards tied to bank accounts sparingly, and only for in person purchases. I have even started using one specific credit card not tied to a bank account, solely for gas purchases, to insulate the possibility of compromising a more important account.

Even when you take all possible precautions, there are still other avenues available for thieves to exploit and break into your account or set up another one in your name.

Fortunately, if you follow the steps we've listed here, and report and document the unauthorized transactions properly, you shouldn't be on the hook for anything more than $50 and a whole lot of phone calls to the credit bureaus to repair your credit report.

Credit cards are really handy financial tools everyone should have, but their use does come with risks.

I think the important thing is for all credit card owners to think and act defensively and know the risks they're exposed to, and how to respond to them and minimize the consequences.