What’s credit card fraud detection and why is it important?
According to the Federal Trade Commission (FTC), credit card fraud is the most common form of identity theft in the U.S. So it’s important to safeguard your financial information and keep an eye out for potential scams.
But even the most vigilant cardholders may encounter fraud at some point. Fortunately, credit card fraud detection can help maintain account security and reduce the chances of credit card fraud.
Key takeaways
- Credit card fraud is a form of identity theft that occurs when fraudsters use another person’s credit card to make purchases or get cash advances without their permission.
- Credit card fraud detection refers to the different ways credit card companies identify and manage fraud.
- Many credit card issuers use tools like artificial intelligence (AI), machine learning and data analysis to identify fraud.
- Card features like fraud alerts, instant purchase notifications and text messaging can also help cardholders protect their accounts.
What is credit card fraud?
Credit card fraud is a form of identity theft where fraudsters get access to someone else’s credit card or account without their permission. The criminals may make purchases or get cash advances without the cardholder’s knowledge or consent.
In some cases, credit card fraud happens after someone physically steals another person’s card. But it may also happen in the form of an account takeover, a cloned card or card-not-present theft, where account information is obtained through hacks or phishing or it is purchased on the dark web. Credit card fraud could also happen through the unauthorized use of a credit card by a family member.
But modern technology like EMV chips, contactless payments and virtual card numbers can reduce the risk of credit card skimming, cloning or card fraud. Plus, thanks to the Fair Credit Billing Act, cardholders may only be liable for up to $50 of unauthorized charges. And some cardholders may not be liable at all.
Still, it’s a good idea to take steps to prevent credit card fraud—and act quickly if fraudulent activity is suspected or detected.
What is credit card fraud detection?
Credit card fraud detection describes the different ways financial institutions help prevent, identify and manage credit card fraud.
Credit card fraud detection methods are typically digital and automatic. Some financial institutions use AI and machine learning to analyze typical customer behavior—such as their spending habits and credit usage—and flag any unusual account activity.
Credit card companies and other financial institutions may also use AI to alert cardholders to irregularities in their accounts. For instance, Capital One cardholders who opt into text alerts from Eno, your Capital One intelligent assistant, can get automatic alerts if Eno notices any suspicious activity.
How does credit card fraud detection work?
Credit card fraud detection strategies can vary depending on the credit card issuer. According to Inscribe, some of the most common practices involve using AI, machine learning and data analysis to review spending patterns and account behavior.
If account activity falls outside the user’s typical behavior, the analysis tool can alert the credit card issuer. The card issuer can then decide whether to approve the transaction or notify the cardholder.
What’s defined as unusual account activity can vary. But Inscribe says some examples of anomalies include:
- Multiple transactions in a short period of time
- Sudden increases in spending
- Making a particularly large purchase
- Multiple transactions from the same retailer
- Purchases that take place in a foreign country or unusual location
- Transactions that happen at unusual times
Credit card companies may also implement additional, real-time security features to help users protect their data. For instance, Capital One cardholders can set up instant purchase notifications in the Capital One Mobile app. The app will then alert the cardholder any time a transaction is approved.
Credit card fraud detection FAQ
Still curious about credit card fraud and how it’s detected and reported? These frequently asked questions might help.
How can someone use my credit card without having it?
There are several ways fraudsters may be able to use your credit card without actually possessing it. Generally, online purchases only require your name, credit card number and security code. So if a fraudster purchased your information on the dark web or accessed your account details through a hack or a phishing scam, they may be able to make purchases without needing your actual card in hand.
Should I call the police for a stolen credit card?
After confirming that your card was stolen, you may decide to file a police report. While Experian®, one of the three major credit bureaus, says that “not every case of identity theft necessitates getting the police involved,” having a police report can help during a fraud investigation and when trying to dispute fraudulent charges with your card issuer or other retailers.
But if you choose not to turn to the police, it’s still important to file an official report. An FTC identity theft report, which you can file at IdentityTheft.gov, will also qualify as documentation of fraud.
How is credit card fraud investigated?
According to Experian, your credit card company may want to first confirm that the charge was actually fraudulent and not an error. If fraud is confirmed, your card issuer may cancel your credit card, send you a replacement and initiate a fraud investigation—which can take up to 90 days. During that time, your credit card issuer may request receipts or copies of a police report.
You can check with your card issuer to learn more about its specific policies on credit card fraud and investigations.
What should I do if credit card fraud is detected?
The Consumer Financial Protection Bureau recommends placing a fraud alert or credit freeze on your credit report if fraud is suspected or confirmed.
A fraud alert lets the three major credit bureaus, which include TransUnion® and Equifax® along with Experian, know that you may have been a victim of credit card fraud. It requires them to take extra steps to verify your identity. A credit freeze locks your credit file, preventing creditors from accessing your credit report and blocking the creation of new credit accounts in your name until you lift the freeze.
Credit card fraud detection in a nutshell
Credit card fraud detection tools and policies can help financial institutions keep their cardholders’ data safe. And security features like instant purchase notifications and fraud alerts can empower cardholders to stay one step ahead of credit card fraud.
As a Capital One cardholder, you have access to security features, including the ability to lock cards that are lost or stolen. You can also learn more about how Eno can help detect fraud and keep your accounts secure.