Can Credit Card Fraud Affect Your Credit Score?

Someone checking their Credit Score on their phone

Credit card fraud is a serious issue that occurs when an unauthorized individual gains access to your personal information and uses it to make purchases. In the United States, credit card fraud is the most common form of identity theft. According to Fool, approximately 426,000 cases of credit card fraud were reported to the FTC in 2023. In Canada, credit card fraud is the most frequently reported type of fraud at 21%, followed by debit card fraud at 8% and online phishing scams at 8%, as reported by Ipsos, a leading market research company.

If you fall victim to credit card fraud, you may face unauthorized charges that can lead to significant financial burdens. Additionally, a drastic increase in your credit card balance could potentially harm your credit score.

Unfortunately, detecting credit card fraud can be challenging, and resolving it can be even more difficult. For example, When scammers used a Canadian woman's name to apply for a Walmart MasterCard and accumulated over $1,500 in charges, it was clearly a case of fraud according to the police. However, the victim had to struggle for three years to get Walmart and Equifax to fix her credit record.

All you have to do is remain vigilant for warning signs, regularly monitor your financial accounts, and take immediate action to address any theft that occurs.

Can Credit Card Fraud Hurt Your Credit Score?

I have never been a victim of credit card fraud before. However, by all accounts, credit card fraud can really mess up your credit if the bad stuff ends up on your credit reports. But don't worry - if you catch it and report it, Experian says those sketchy transactions or accounts can be taken off and won't mess with your credit score anymore.

For example, if someone gets a hold of your card info and goes on a shopping spree without you knowing, your credit score could take a hit from the higher balance and utilization rate. Or maybe someone gets info from a card you hardly ever use. If the card company doesn't have your current contact info, you might not even know if the fraudster racks up charges and doesn't pay the bill. Then you could end up with late payments on your credit report that drag down your score.

In another sneaky move, someone could swipe your Social Security number and open a credit card in your name. That application and new account could lead to a hard inquiry and lower the average age of your accounts, both of which can ding your credit. You might not even realize what's going on until you check your credit report and see an account you don't recognize with a big unpaid balance.

In September 2023, USA Today reported that a Taco Bell employee named Trevell Mosby was arrested for allegedly cheating and making fraudulent charges on several customers' credit cards, according to the Oregon Police Department. Police records indicate that Mosby was charged with theft and identity fraud.

Sometimes, the perpetrator is a parent or other relative. According to a report by Fortune on November 4, 2023, American parents are stealing their children's identities to rack up debt, which ends up ruining their kids' credit scores.

What Should You Do if Your Credit Score is Affected by Fraud?

Mistakes or scams in your credit report can totally mess up your credit score and stop you from getting a loan or credit card. And you might not even realize it if you don't check for them. But don't worry, you can challenge any errors or fraud directly with the credit bureaus. Once the problem is fixed, your score should bounce back pretty quickly. But it can be a hassle to reach out to all the lenders involved and get them to close your accounts. The credit agencies might also label your account with an “XB” code to show that there's a dispute going on.

If you spot a mistake or fraud on your credit reports, the Consumer Financial Protection Bureau suggests reaching out to the credit bureaus responsible for producing the reports. These include Equifax, Experian, and TransUnion. You can dispute any inaccuracies on your consumer credit reports either online or by mail. 

Make sure to provide your contact information and explain in writing what the error or fraud is and why it's incorrect. You can find sample dispute letters on the CFPB website to help you out. Don't forget to include any supporting documents, like emails confirming the status of the account that's been reported incorrectly. 

The CFPB also advises keeping copies of all letters and documents you send, and recommends using certified mail with a return receipt if you're sending things by mail. The credit bureau has 30 days to investigate your dispute, but if they think it's "frivolous" or "irrelevant," they'll let you know and stop investigating. In that case, you might need to provide more evidence to support your claim.

Another way to handle it is by reporting the fraud to your credit card company. They might cancel your card and send you a new one, or close the account if it was opened fraudulently. The card issuer will look into your claim to figure out what happened.

The good news is, if the credit card company determines that you didn't authorize the transactions, you usually won't be on the hook for the charges. That's because major card networks like American Express, Discover, Mastercard, and Visa offer zero-liability protection for fraudulent purchases. Your card issuer might even refund the money while they investigate.

Once the credit card company finishes their investigation, they might update the information they send to the credit bureaus. This means any negative marks on your credit report from the fraud - like high balances, late payments, or accounts you didn't open - could be removed. That way, your credit scores won't take a hit because of someone else's shady dealings.

Avoiding and Preventing Credit Card Fraud

Unfortunately, credit card fraud is on the rise these days. If you love to travel and use credit cards to rack up points and miles, you need to educate yourself on how fraud works and how to protect yourself. It's all fun and games when you discover an extra $30 in points on your card, but it's a different story when you spot a $1,000 charge that you didn't authorize!

To avoid falling victim to credit card fraud, you should understand how credit card companies handle fraud, the steps to take if you notice suspicious activity, and your rights and responsibilities regarding unauthorized charges. Keeping a close eye on all your accounts and credit reports is the best way to catch fraud early. There are free credit monitoring services like Credit Karma and Credit Sesame that can help you stay on top of things.

While you can pay for more comprehensive credit monitoring services, it's usually not necessary if you're using your credit cards responsibly and monitoring your accounts regularly. However, if you've experienced full-blown identity theft, investing in these services might be a good idea. 

To protect yourself from both credit card fraud and identity theft, make sure to keep your sensitive information secure at all times.

Even with precautions, there's always a risk of a data breach. So, before making any purchase, whether online, in-store, or over the phone, ensure that your information is safe. Look for "https" at the beginning of the website URL for online transactions, avoid using public wifi, keep your card out of sight when paying in-store, and only provide your credit card number over the phone if you initiated the call.
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