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Posted in Personal Finance

Reducing Your Risk of Credit Card Fraud

Reducing Your Risk of Credit Card Fraud

Over the past few years, credit card fraud has become a major issue in the United States, as well as worldwide. Millions of people are affected by credit card fraud each year. In fact, in just 2010 alone, U.S. credit card fraud losses were estimated at more than $3.5 billion.

In its most basic sense, credit card fraud is committed by using another person’s credit card (or credit card number) in order to make purchases and obtain cash advances without the rightful owner’s knowledge.

Types of Credit Card Fraud with Identity Theft

There are numerous types of credit card fraud transactions. In one, identity thieves will open new credit card accounts in the name of a victim. Then, after making a number of purchases on these cards, the identity thieves do not pay the credit card bills when they come due.

Unfortunately, the delinquent account appears on the credit report of the victim. It can often take months or even years in order to remove this incorrect information – and that is if the victim even notices it at all.

In other types of identity theft fraud involving credit cards, the identity thief will change the billing address on the card so that the statements are diverted to a different address. This way, the victim will not only be unaware that there are false credit cards in his or her name, but they will never receive the bill. Here again though, it is the credit report of the victim that is damaged due to the unpaid credit card bills.

Combating Credit Card Fraud

Today, there are several services available to help in combating credit card fraud, including those that monitor one’s credit. There are also services that can assist the victims of credit card fraud in rebuilding their identity after such fraud has occurred.

Fraud alerts work as indicators that are placed in a credit report or credit file for the purpose of warning potential creditors to use reasonable policies and procedures when verifying identity prior to issuing credit to anyone who applies.

These alerts can be effective in preventing identity thieves from opening new credit cards in the names of victims. But unfortunately, these fraud alerts do not help in preventing the misuse of existing credit card accounts.

Free credit reports can also help in the prevention and/or the stoppage of identity theft and credit card fraud. Each year, consumers have the right – by federal law – to receive one free credit report from each of the nationwide consumer reporting companies.

In obtaining your credit report, you can both monitor and keep close tabs on your credit on a regular basis – and if you spot something that appears to be fraudulent, you are able to protect yourself from further damage more quickly.

Another way to help in the combating of credit card fraud is credit freezes. These can actually allow you to restrict access to your credit report. This essentially helps in preventing potential creditors and others from accessing your credit report – at least until the credit freeze has been lifted.

These credit freezes can make it much more difficult for an identity thief to obtain your personal information and open new credit accounts in your name. However, just like with fraud alerts, credit freezes do not prevent the misuse of existing credit accounts.

One of the best ways that consumers can help in protecting themselves from identity theft is through the use of identity theft insurance. This type of insurance can help in insuring against this potentially costly risk. In some cases, identity theft insurance may even be attached as a rider on your homeowner’s insurance policy. The coverage is fairly inexpensive, depending on the benefits that are applied for.

One thing to keep in mind regarding identity theft insurance, though, is that while it can help to indemnity you against the costs that are associated with rectifying the situation – as well as the process of getting your information straightened out – it will not reimburse you for money that may have been stolen from you by an identity thief.

In other words, although identity theft insurance will cover some of the costs that are involved in dealing with the issue of identity theft once it has occurred, it cannot protect you from becoming the victim of identity theft in the first place. Therefore, it is essential to keep a watchful eye on your credit report and credit card information at all times.

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