Understanding the Distinction Between Credit Card Fraud and Identity Theft

You've likely encountered the terms credit card fraud and identity theft before, and if you've been unfortunate, you might have experienced one of these crimes personally.

It's important to note that credit card fraud and identity theft are not synonymous. Both involve the unauthorized use of your personal information, but one is generally easier to prevent and recover from.

Continue reading to explore the differences between credit card fraud and identity theft. Additionally, I'll share some recovery tips in case your personal information falls into the wrong hands.

Credit card fraud

Have you ever received a call from your credit card issuer about a questionable transaction that you didn't authorize? Or have you looked over your credit card bill only to find charges you didn't make? If you can say yes to either, you may have fallen victim to credit card fraud.

The FBI defines credit card fraud as "the unauthorized use of a credit or debit card, or similar payment methods (like ACH, EFT, recurring charges, etc.), to illegally acquire money or property. Card details can be taken from unsecured websites or through identity theft schemes."

In a technical sense, credit card fraud is a subtype of identity theft. However, it differs significantly from having your identity completely stolen.

Discovering that someone has stolen your credit card information can certainly be distressing. It’s frustrating to realize a criminal has used your account for unauthorized purchases. However, credit card theft is generally easier to resolve compared to other types of identity theft.

For instance, TPG credit card writer Danyal Ahmed had his Chase Sapphire Reserve® card compromised just two days after he received it in 2016. After using the card for the first time at a restaurant, he quickly noticed nearly $10,000 in unauthorized charges shortly after the transaction.

Check out the tips below on how to manage credit card fraud should it occur to you.

Identity theft

Identity theft refers to a serious issue that goes beyond a few unauthorized charges on your credit card. As defined by the FBI, "identity theft happens when someone takes on your identity to commit fraud or other criminal activities."

How do criminals acquire the information necessary to impersonate you? The FBI notes that thieves can obtain your personal details from various sources, including:

• Stealing your wallet
• Going through your trash
• Compromising your credit or banking information
• Contacting you directly (in person, by phone, or online) to solicit your information

When someone unlawfully obtains your personal identifying details (like your name, address, Social Security number, or date of birth) to open fraudulent accounts in your name, this is referred to as true name fraud. When individuals claim their identities have been stolen, they are often referring to true name fraud.

In contrast to credit card fraud, true name fraud can affect you for years to come. Recovering from identity theft is often a far more complex process than merely changing your credit card number to thwart a thief. Fortunately, federal laws exist to protect those victimized by identity theft.

Check out the tips below for recovering from identity theft should it occur to you.

Recovering from credit card fraud

If someone has used your credit card without your authorization, the first thing to remember is to stay calm. Federal laws offer strong protections against fraud liability.

As long as you report any fraudulent charges quickly (within 60 days), you typically won’t be held liable for those unauthorized transactions.

Here’s an overview of the two primary federal laws that safeguard you against credit and debit card fraud.

• The Fair Credit Billing Act (FCBA): The FCBA limits your liability for fraudulent credit card transactions to a maximum of $50. Just make sure to act quickly—report any unauthorized charges to your card issuer within 60 days to benefit from this protection. Additionally, all major credit card networks currently offer zero-liability fraud policies, meaning if you report fraudulent charges promptly, you likely won’t pay anything out of pocket.
• The Electronic Funds Transfer Act (EFTA): The EFTA limits your liability for debit card fraud to no more than $500 ($50 if you report the fraud within two business days). Debit card fraud can be more challenging for another reason: unlike credit card fraud, it involves the theft of your personal funds, which may be tied up while your bank investigates any unauthorized activity.

As shown above, the protections for debit card fraud are not as robust as those for credit card fraud. This is one reason I suggest that many individuals might prefer credit cards over debit cards as their primary payment option, provided they can commit to paying their balance in full each month.

Recovering from identity theft

If your credit card information is stolen, you can report the fraud to your card issuer, which will then close the account. As long as the thief cannot access your new card number (pro tip: update your online passwords regularly for added security), the issue should be resolved.

The situation is different when it comes to the theft of your personal identifying information.

You can’t simply change your Social Security number or date of birth to stop criminals from exploiting your information. However, the positive aspect is that you can take steps to significantly complicate their efforts to profit from your personal data.

Here’s how you can protect yourself.

• Set fraud alerts on your credit reports with Equifax, TransUnion, and Experian: The Fair Credit Reporting Act (FCRA) allows you to place free fraud alerts on your reports with all three major credit bureaus. This alert notifies lenders that they must contact you to verify your identity before opening any new credit accounts in your name.
• Freeze your credit reports: While a fraud alert prompts lenders to seek your approval before opening new accounts, it leaves room for human error. A credit freeze, however, prevents new lenders from accessing your reports unless you grant permission, which you can do by "thawing" your reports using a PIN code or password.
• Regularly check your credit reports for signs of fraud: The FCRA entitles you to expect only accurate information on your credit reports. It’s your responsibility to ensure they are error-free. If you haven’t obtained your three free credit reports from AnnualCreditReport.com in the past year, that’s a great starting point. Additionally, I recommend checking your credit reports at least monthly for extra safety. (Tip: Checking your own credit report will not affect your credit score.)
• Report identity theft quickly: If you fall victim to true name fraud, it’s crucial to report any fraudulent accounts to the three credit reporting agencies as soon as possible. You can go to the Federal Trade Commission's IdentityTheft.gov to file a report. Afterward, send your identity theft report to Equifax, TransUnion, and Experian. According to the FCRA, these agencies must remove fraudulent information from your credit reports within four business days of receiving your report.

Staying proactive is essential

Whether you’ve experienced credit card fraud or identity theft, being proactive is vital. You can’t rely solely on your card issuer or credit reporting agencies to catch fraud for you (though sometimes luck may be on your side). It’s your duty to ensure that your credit reports and credit card statements are accurate.

Make it a routine to review your credit card statements and all three credit reports monthly for any errors, discrepancies, or fraudulent activity. If you notice anything suspicious, remember that federal law protects you as long as you report it promptly.

In summary

While both credit card fraud and identity theft are serious issues, recovery from credit card fraud is often quicker due to federal laws and zero liability protection associated with credit cards. In contrast, identity theft poses a much greater threat as it involves the compromise of your personal information, including your SSN, date of birth, and address. In either case, it's essential to report any suspicious activity to your credit card issuer and the credit reporting bureau immediately to ensure your protection.