How Do Credit Card Companies Investigate Fraud?

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Credit card companies and merchants put many measures in place to prevent credit card fraud, and they'll investigate fraud when it happens. Generally, you won't be responsible for any unauthorized charges if you report the card stolen or dispute unauthorized transactions right away.

The Two Types of Credit Card Fraud

Credit card fraud is when someone uses your credit card or account information to make purchases without your permission. It generally gets broken into two categories.

  • In-person fraud, or card-present fraud, is when someone steals your card, creates a counterfeit card with your account information or otherwise uses your account information for an unauthorized transaction while they're at a merchant.
  • Remote fraud, or card-not-present fraud, is any other situation when someone fraudulently uses your credit card account to make a purchase, such as shopping online.

Once you report an unauthorized transaction, the credit card company may work with you to confirm it's a case of credit card fraud rather than a simple mistake. For example, a merchant overcharging for a purchase you made or failing to deliver a product is not necessarily credit card fraud. You may be able to initiate a chargeback and get refunded—but you wouldn't go through your card issuer's fraud channels to do so.

If you are a victim of credit card fraud, the federal Fair Credit Billing Act (FCBA) limits your liability to no more than $50 for unauthorized charges. However, American Express, Discover, Mastercard and Visa go one step further and bring that liability down to $0 on consumer credit cards.

How Card Issuers Investigate Fraudulent Charges

Once a suspected fraud transaction is noticed, your credit card issuer may cancel your card, send you a replacement and start a fraud investigation. It may also refund the amount back to your account. Even if it doesn't immediately issue a refund, you're not responsible for disputed amounts during the investigation.

A credit card fraud investigation could take up to 90 days, during which time the credit card issuer may contact the merchant that charged your card to get more details about the transaction. The card issuer may request copies of a police report or receipts to compare signatures if they're available.

Card issuers and merchants may also look for "friendly fraud," which is when a cardholder makes a purchase and then disputes it as fraud—even though it wasn't.

If fraud has occurred, the outcome of the investigation will also help the merchant and credit card issuer settle who is responsible for covering the fraudulent purchase (the actual fraudster may be long gone). Either way, you won't pay anything if your card's payment network provides $0 fraud liability.

What Fraud Protection Features Do Credit Cards Provide?

Preventing credit card fraud can help save merchants and credit card issuers money, build trust among cardholders and keep you from having to wait for a new card. In short, it's a win-win for everyone.

Credit card issuers use a variety of measures to stop fraud from happening. These can range from physical features built into your card to complex artificial intelligence systems that detect and decline unusual transactions (a high-dollar purchase made at a store hundreds of miles from where you live, for instance).

As a cardholder, you could look for a card or issuer that offers:

  • EMV chips: Cards with EMV chips are now fairly standard. EMV chips can add an extra level of protection compared to swiping a card's magnetic strip, but they may still be susceptible to card shimming—when a device gets put into a card terminal and copies your card's information while it's inserted.
  • Contactless cards: Tapping a card or using a mobile device with a digital wallet can be even safer than swiping or inserting your card. Many popular credit cards from major issuers come with contactless payments enabled and work with popular digital wallets.
  • Virtual card numbers: Credit card issuers may let you create a virtual card number to use when shopping online, keeping your card's actual information a secret.

There are also credit card fraud prevention measures that could be taking place without you noticing.

For example, before a transaction gets approved, it may be assigned a risk score based on the time of day, transaction amount, card's transaction history, the location of your mobile phone and other variables. The merchant can decide whether to approve or deny transactions depending on their risk scores. And online purchases may be scrutinized based on additional information, such as the purchaser's IP address, email host, shipping address and order details.

What Can You Do if You're a Victim of Credit Card Fraud?

Even with all these safety measures in place, it's best to be mindful of credit card fraud. If your card is lost or stolen, contact your credit card issuer right away so it can cancel your card and send you a replacement.

You might need to take additional steps if your personal information is stolen or there are unauthorized charges on your account and you still have your card:

  • Add a fraud alert to your credit reports. When you do this online through Experian's fraud center, Experian will pass on your request to the other two major credit bureaus. A fraud alert asks creditors to take extra steps to verify your identity before opening a new account in your name.
  • Lock your credit report. You can also lock or freeze your credit to help prevent fraud. Doing this will prevent new creditors from accessing your credit report, so you'll have to remember to unlock or thaw your report when you want to apply for a new account in the future. Freezing your credit can cause headaches down the road, so it's usually best to proceed with a fraud alert instead.
  • Change account passwords. If your card's information was stored in your online accounts, it may have been stolen during a data breach. Change your passwords before adding new cards to the account.
  • Watch your credit card and bank accounts. Fraudsters may have access to other credit and debit cards, even if they haven't used them yet. You can monitor the accounts individually, or sync all your accounts to a central platform to easily track them. Many budgeting apps offer this feature. Experian also has a free personal finances tool you can use to connect your accounts and set up customized alerts.
  • Monitor your credit. You can also monitor your credit reports for unusual activity, such as an unfamiliar hard inquiry (these are associated with new credit applications) or a new account.

Monitor and Protect Your Identity

Credit card fraud can be one of the many consequences of having your personal information stolen. Monitoring your credit reports and accounts can help you respond quickly, while a more robust identity monitoring service like Experian IdentityWorksSM can offer additional protections, such as dark web surveillance and address change verification. And if something does happen, the service comes with the lost wallet assistance, identity theft insurance and fraud resolution services.