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May 25, 2022 John Wechsler

Identity Theft vs Credit Card Fraud: What's the Difference?

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Estimated Reading Time: 4 Minutes

Credit card fraud and identity theft happen more often than many people think, and as fraudsters’ tactics grow in sophistication, these crimes become more and more common each year. In fact, there were nearly 2.8 million fraud reports submitted to the FTC in 2021. Additionally, Javelin Strategy & Research found that 42 million Americans were victims of identity fraud in the same year.

Although credit card fraud and identity theft can both damage your credit history, they are not the same. The main difference between the two is credit card fraud occurs when someone steals your credit card information and uses it to make unauthorized purchases. On the other hand, credit card fraud can be a result or consequence of identity theft, which involves a thief stealing your personal information to assume your identity and commit fraud.

How Does Credit Card Fraud Occur?

Credit card fraud typically happens when someone steals your credit card information to make unauthorized purchases. This can be done by a stolen wallet or purse, ATM skimmers, shoulder surfing, and more. Additionally, if the criminal works at a retail store or in a restaurant, he or she may simply copy your credit card details during a transaction to then use later to make fraudulent purchases. Even if your credit card is “secured” in your wallet or purse, your information can be stolen via unsecured websites, responding to scam solicitations, etc. When it comes to credit card fraud, however, there is a liability limit. In the event you become a victim of this crime, most credit card companies have a liability limit of $50. So, even if a thief has charged thousands of dollars to your card, you would likely pay a maximum of $50. Oftentimes, credit card companies will even wipe out all the fraudulent charges.

The Impact of Credit Card Fraud

Credit card fraud can be caught early if appropriate measures are taken such as regularly monitoring your credit reports. Additionally, there are credit card companies that will send out alerts if there are transactions that look unusual. When a thief has a stolen credit card number, they can potentially max out that account and may even open other credit cards under the stolen credit card owner’s name.

How Does Identity Theft Occur?

With identity theft, criminals obtain an individual’s personally identifiable information (PII) to use for their own financial gain. PII such as your Social Security number (SSN), birth date, or even your bank account details can often be used to assume your identity. Unlike credit card fraud, there’s no liability limit. Thus, someone who has become a victim of identity theft might end up paying for all the damage caused by the thief.

There are other ways for identity theft to occur. For instance, thieves can steal your medical information to get free healthcare. Hackers can also fraudulently obtain your personal information to open loans in your name or even file for unemployment benefits.

The Impact of Identity Theft

The impact with identity theft can potentially be much greater than credit card fraud and last for an extensive period. Oftentimes, an individual may not realize they are a victim until a collection agency calls them to collect the outstanding payment, etc. When a debt has been purchased in full by a collection agency, the new account owner (the collector) will typically notify the debtor by phone or in writing. An unpaid bill or loan can lead to a negative impact on your account and a drop in your credit score.

Being a victim of an identity theft can also have an emotional toll. According to the Identity Theft Resource Center (ITRC), 77% of these victims had increased stress levels, 84% feel worried or anxious, and 76% feel angry and violated.

What’s more, it can take about 100 to 200 hours over 6 months to recover an identity theft on average. Depending on the complexity, the recovery process can possibly involve working with the three major credit bureaus, contacting government agencies or financial institutions, securing a lawyer, etc.

How Can You Protect Yourself from Credit Card Fraud and/or Identity Theft?

Beware of “phishing” and “spoofing” communications

Phishing involves the fraudulent practice of sending emails purporting to be a legitimate company in order to obtain your personal or financial details. Spoofing is a type of phishing tactic in which the scammer imitates a reputable company to trick them into divulging sensitive information. It’s important to know the difference between a legitimate solicitation and a scam.

  • Do not give out personal information to a suspicious caller or via email to an unfamiliar source.
  • Visit the organization’s website to reach out to them directly in making sure you’re communicating with a legitimate employee/representative.

Take advantage of your financial institutions’ alerts feature

Many financial institutions send texts or emails to alert the account owner of certain transactions made to their account, depending on the user’s notification settings. You can receive notifications to alert you when and where your credit cards are used, when withdrawals or deposits are made, and more.

Consider placing a fraud alert on your credit reports

Placing a fraud alert on your credit reports offers extra protection as the alert notifies the three major credit bureaus of a potential fraud risk, alerting potential creditors to contact you before a new account is opened in your name.

Guard your Social Security number (SSN)

In the U.S., your SSN is the key to your identity. When asked for your SSN, always question why it is needed or required. Do not carry this information every where you go. Securely store your SSN card or shred paperwork containing that information.

Consider enrolling in a comprehensive identity theft protection program

Identity theft protection services can help you monitor your credit as well as identity on the deep web, alert you of suspicious activity and/or high-risk transactions, and reduce the time spent resolving the fraud by yourself since these services should provide expert resolution assistance.

Remember, while identity theft and credit card fraud can happen to anyone, you can use these tips to protect yourself from becoming a victim of these crimes. Contact us today to learn if your trusted cybersecurity provider, insurance carrier, and/or financial institution offer comprehensive identity protection services.

Published by John Wechsler May 25, 2022