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Many people may believe credit card fraud and identity theft are the same. In reality, they’re different crimes — and both can seriously damage your credit history, making it difficult for you to get a loan or apply for new credit cards.
Both crimes involve someone assuming a false identity, says Eric Tyson, an economist and the author of “Personal Finance for Dummies.”
The primary difference between credit card fraud and identity theft is that credit card fraud typically involves a single credit account. If someone steals your identity, the potential for damaging your credit history can be much greater because someone can open numerous lines of credit in your name.
These crimes are very common. According to a 2014 survey by the Aite Group and ACI, 41 percent of Americans had experienced some form of card fraud over the previous five years. And in 2014 alone, about 17.6 million U.S. residents age 16 or older were victims of one or more incidents of identity theft, according to a September 2015 U.S. Department of Justice report.
Credit Karma has created a way to help you detect identity theft.
With the ID monitoring feature, you can use your email address to search for any accounts that are in any public data breaches. If your information has been exposed in a breach, we’ll let you know some tips and tools to help you take the right next steps.
We’ll also continue to monitor your identity and credit for free.
Credit card fraud
Credit card fraud typically occurs when someone steals your credit card information and uses it to make unauthorized purchases, Tyson says. This can be done by taking your purse or wallet. Alternatively, if the criminal works at a retail store or in a restaurant, he or she may simply copy your credit card information during a transaction.
Sometimes, though, credit card fraud can occur through more high-tech means. For example, 24 percent of American investors had their credit or debit card information stolen through computer hacking during the previous year, according to a 2015 Spectrem Group Investor Pulse survey.
The good news? Generally, a credit card holder isn’t responsible for illegal use of his or her credit card, Tyson explains. “The credit card company gets stuck with the bill.”
According to the Federal Trade Commission, the Fair Credit Billing Act (FCBA) can offer protection if your credit cards are lost or stolen — when you report an unauthorized credit card charge to the issuer, the FCBA limits your total liability to $50, and many credit card issuers may not hold you accountable for unauthorized charges at all.
So how can credit card fraud affect your credit score? How you handle credit card debt factors in to how credit reporting companies calculate your credit score. If your credit card provider reports unpaid bills to credit-reporting companies, they may adversely affect your credit score, Tyson says.
While creditors and lenders have varying policies, many credit card accounts are sent to collection agencies after 180 days of non-payment. The original creditor or the collection agency may report this to one or more of the credit bureaus.
With identity theft, criminals obtain other people’s personal information for their own economic gain, Tyson says. Personal data, such as Social Security numbers, birth dates and bank account numbers can be used to assume your identity.
“They can get a driver’s license under your name,” says identity security expert Robert Siciliano, CEO of IDTheftSecurity.com. “They can function and live as you.”
Fraudsters can steal your information from a variety of sources, including your social media accounts or even your trash. Accessing a Facebook account sometimes provides a criminal with enough personal information to assume someone else’s identity, says Jeffrey Sklar, a certified financial crime specialist and managing partner of the Sklar, Heyman, Hirshfield & Kantor accounting firm in Bellmore, New York.
According to the Federal Trade Commission, laws in most states limit your responsibility for debt incurred on fraudulent new accounts opened in your name without your permission. However, clearing fraudulent purchases from your credit report can take months.
Using credit monitoring services can be helpful because they can track credit reports each day and notify consumers of negative reports from creditors — such as late bills — and other significant changes. For example, Credit Karma’s credit monitoring service can notify you after a new account is opened in your name and reported to your TransUnion and Equifax credit reports.
6 tips for avoiding credit card fraud and identity theft
Consumers can help protect themselves from credit card fraud and identity theft by taking the following steps:
- Beware of “phishing,” in which criminals pose as legitimate banks or businesses seeking personal information over the Internet, Tyson says. For example, beware of scammers claiming to be from the Internal Revenue Service and asking for a credit card number to pay your delinquent debt.
- Regularly monitor your bank and credit card statements to detect purchases you didn’t make.
- Carry your credit cards separately from your cash. Sklar says this can minimize your losses if someone steals your wallet or purse.
- Protect your online passwords. Sklar says you should have a separate password for each financial account. Strong passwords should have at least eight characters, not contain real names, not contain complete words, and differ significantly from previous passwords, says Microsoft.
- Monitor your credit. Credit Karma offers free credit scores, reports and monitoring so you can keep an eye on your credit.
- Place a security freeze on your credit reports if you believe you’re a victim of identity theft. This can prevent credit transactions and loans from being approved without additional security verification. You can request a freeze online by contacting the three major credit bureaus — TransUnion, Equifax and TransUnion. You’ll need to contact all three companies separately to make sure that each credit report account is frozen.
If someone steals one of your credit cards or assumes your identity, he or she can damage your credit history and complicate your life. Be sure to take precautions to keep all of your financial information secure.