Credit card fraud occurs when a credit card is used to make purchases, pay for other financial transactions, or withdraw cash without the consent of the cardholder—either by physically taking your credit card or by hacking your card information virtually. If you become a victim of credit card fraud, you can incur unauthorized charges on your bills, resulting in financial losses and a high credit utilization ratio that can potentially damage your credit score.
Businesses collectively incur billions of dollars in business credit card fraud losses each year. If you use a credit card, you need to know how to prevent small business credit card fraud and what you can do to minimize your exposure if you become a victim.
Types of Credit Card Fraud for Both Merchants & Business Credit Card Holders
There are several ways an individual can perpetrate credit card fraud, including in-person, online, by phone, or by text. It’s important to understand how each type works so that you’ll know how to protect yourself.
Here are some of the most prevalent types of credit card fraud you need to be aware of.
Identity theft, also known as credit card application fraud, happens when criminals use the stolen personal information of an individual to apply for a new credit card. This information includes the name, address, birthday, and social security number.
As a result, fraudsters can make purchases using the credit card under the victim’s name. Although the victim won’t be personally liable for the charges on the card due to various protections offered by credit card companies, this situation can still potentially damage the victim’s credit score.
How To Protect Yourself From Identity Theft | |
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For Business Credit Cardholders | For Merchants |
Use extra caution when providing personal information online—only deal with websites or online merchants you trust. | Ask for additional identification when receiving credit card payments. |
Check your credit record from time to time to look for suspicious transactions. | Allow only verified customers to purchase your goods and services. |
Freeze your credit with credit bureaus so new accounts can't be opened without your consent. | |
Card skimming involves the use of a gadget (also known as a skimmer) to capture credit card information from unsuspecting victims. This works by placing the skimmer on top of ATMs and other card readers to steal someone’s credit card details and PIN personal identification number . Typically, cardholders won’t notice the skimmers because they are meant to blend in with the legitimate card reader.
How To Prevent Credit Card Skimming | |
|---|---|
For Business Credit Cardholders | For Merchants |
Check ATMs and card readers for any signs of tampering before using them. | Keep your business area safe by installing security systems to discourage attempts to tamper with your credit card readers. |
Only use secure card readers with encryption and tamper-evident seals to protect your business from reputational damage and prevent skimmers from being installed on your credit card readers. | |
Phishing is an online scam that tricks users into clicking fraudulent links from emails pretending to be from legitimate sources and then convinces you to input your credit card details and personal information. These links typically come from fake online stores where you will be asked to go through a spurious payment process so the scammer can get your credit card information.
How To Protect Yourself Against Phishing | |
|---|---|
For Business Credit Cardholders | For Merchants |
Always check the senders of emails and messages to ensure they are from legitimate sources. | Remind your customers to only interact with emails and messages that come from your official contact information. |
Do not click on links that are not from official business websites. | Keep your payment channels secure. |
Use virtual cards—they are more secure because each transaction generates a unique number, so perpetrators will not have access to sensitive card information. | Provide your official websites to customers and tell them to verify the links they receive from any email to ensure that they are not directed to another website. |
Be cautious when dealing with online businesses and only process online payments in secure channels. | |
CNP fraud is a common type of credit card fraud where criminals make purchases without the physical credit card, usually online or over the phone. With CNP fraud, fraudsters usually don’t get caught because they can stay anonymous and the merchant cannot check the physical card and verify the cardholder’s identity.
How To Prevent CNP Fraud | |
|---|---|
For Business Credit Cardholders | For Merchants |
Do not provide your credit card information to anyone you don’t trust. | Invest in payment fraud prevention software. |
Set up notification alerts for suspicious transactions made using your card. | Ask for additional identity verification for online payments. |
Only allow verified customers to make purchases if the card is not present. | |
Have an additional security measure like multifactor authentication or an address verification system (AVS). | |
Another common type of credit card fraud can occur when a card is lost or stolen and the thieves use it to make purchases online. There are also times when criminals intercept credit cards that are newly sent to cardholders in the mail.
How To Prevent Lost or Stolen Card Fraud | |
|---|---|
For Business Credit Cardholders | For Merchants |
If you were expecting a new credit card from your provider but did not receive it, follow up with the issuer to ensure the card was not yet activated or used. | Ask for additional identification when accepting credit card transactions, such as a driver’s license. |
Report lost, misplaced, or stolen credit cards as soon as you notice they are gone. | |
Account takeover fraud happens when a fraudster has stolen your personal information to access your account. They then contact the credit card issuer to change the email address, contact details, passwords, and PIN associated with your credit card, allowing them to fully take over your account.
Account takeover can also happen within the merchant’s online platform where criminals will take over customer accounts so they can access their personal information, including credit card details.
How To Protect Yourself from Account Takeover Fraud | |
|---|---|
For Business Credit Cardholders | For Merchants |
Log in to your online account regularly. | Keep an eye on suspicious activities that indicate fraudulent transactions. |
Set up notifications for suspicious logins to your account. | Invest in a good fraud detection software to detect and stop bots from crawling customers’ accounts for information. |
How Business Credit Card Fraud Can Affect You
Being a victim of credit card fraud can impact your business negatively, whether as a business credit cardholder or as a merchant.
For Business Credit Cardholders
- Credit risk: The major risk of being a victim of small business credit card fraud is damaging your credit due to a high credit utilization ratio and unpaid balances.
- Financial risk: If you don’t monitor your transactions carefully, you might end up paying for unauthorized purchases on your card. This may result in financial losses for your business.
For Merchants
- Reputational risk: Merchants face reputational risk if credit card fraud happens in their business. Customers may question their payment security systems and ability to conduct identification verification.
- Financial strains: Merchants may experience financial strains while waiting for the fraud claims to be solved. Excessive fraud results in bank disputes or chargebacks and also in the payment processor or merchant services provider raising rates to cover the increased risks, imposing rolling reserve policies, or even canceling your account.
- Legal risk: As a merchant, you may encounter legal repercussions with the credit card fraud victim due to a lack of data protection and security standards in your business and payment systems.
Tips To Avoid Credit Card Fraud
Proactive and preventive measures are crucial for stopping credit card fraud in its tracks. Here are a few effective tips that can help you avoid becoming a victim of fraud:
- Guard your credit card information: Keep your credit cards safe—only carry the ones you need and keep the rest in a secure place. Also, cover your card during transactions so that your card details can’t be seen by others.
- Use secure transactions: When making online purchases, only trust websites that use “https://” at the beginning of their URL. Use strong passwords and be careful when clicking links—always double-check that emails and messages are from legitimate sources.
- Monitor your accounts regularly: Review your credit card statements frequently and check for unauthorized transactions. In addition, monitor your online accounts with merchants as well to ensure no one is trying to hack your accounts.
- Set up fraud alerts: Take advantage of fraud alerts offered by credit card companies, where you will be notified via text or email when suspicious transactions are made with your card.
- Enroll in credit monitoring: Protect your credit record by opting in for credit monitoring services from credit bureaus, which will notify you if credit checks are performed on your account.
- Report lost cards and suspicious activities immediately: If your card is lost or stolen, or if you notice suspicious activity on your card, then contact your credit card issuer immediately to notify them. This will help limit your risks.
What To Do If You’re a Credit Card Fraud Victim
If you’re a business credit card owner and become a victim of business credit card fraud, ensure to act quickly and follow this process to minimize your risks.
Step 1: Contact Your Credit Card Issuer
Call the customer service number (usually found on the back of your credit card) to report the fraudulent charges on your card immediately. The issuer will likely ask several questions to verify your identity. Once the fraud is confirmed, follow the issuer’s instructions—it may cancel the current card and issue a new card with different details.
Step 2: Place a Fraud Alert or Credit Freeze on Your Credit
Obtain credit reports from major credit bureaus: Experian, Equifax, and TransUnion. Consider placing a fraud alert on your credit files, which tells potential new creditors or lenders to take extra steps to verify your identity before granting credit in your name.
Alternatively, you might consider a credit freeze, which restricts access to your credit report. This process will make it more difficult for identity thieves and fraudsters to open new accounts in your name.
Step 3: Report the Fraud to Authorities
Once the fraud is confirmed, file a report with the Federal Trade Commission (FTC) through its website at IdentityTheft.gov. The FTC will provide you with an identity theft report, which will be used by the law enforcement authorities for their investigation. It’s best to file a report with your local police department as this can help in case of disputes with your credit card issuer and insurance claims.
Step 4: Contact the Credit Bureaus
Contact the credit bureaus to check if the fraudulent transactions have caused any damage to your credit. Fraud can harm your credit score when it results in late or missed payments on a fraudulent purchase or a high credit utilization ratio.
If this happens, contact the lender or creditor that reported the fraudulent activity to the credit bureaus to help you reverse the damage. You also have the option to file a dispute with the credit bureaus to clear the negative reports on your account.
Step 5: Keep Detailed Records
Document all interactions and communications related to the fraudulent transactions, including dates, names of contacts, and what was discussed. Keep copies of all correspondence and legal reports related to the case, especially if the issue has not been fully resolved. This will provide you with easy references in case you need information regarding this issue later on.
Frequently Asked Questions (FAQs)
Your liability for unauthorized charges on your credit card is limited to $50 before you report the lost or stolen card, thanks to the Fair Credit Billing Act (FCBA), which protects you against credit card fraud. In addition, most credit card issuers provide zero liability protection, which protects you from unauthorized transactions—as long as you report the fraud promptly.
Zero liability protection is a feature offered by most credit card issuers to ensure that cardholders are not held liable for any unauthorized charges made on their credit card or account information. This feature is designed to protect you from financial losses due to credit card fraud.
If a fraudulent transaction is charged to your account, you need to report it immediately to the credit card issuer. The issuer will then cancel your card and investigate the issue. Once the transaction is confirmed as unauthorized, you will not be held responsible for it, and the charges will be removed from your account balance.
Bottom Line
Small business credit card fraud can be a serious problem if not detected and resolved immediately. While you won’t be held liable for any unauthorized charges on your credit card as a business card holder, you will still be exposed to various risks that may harm your credit. As a merchant, you need to stay vigilant to ensure your business remains secure as fraudulent activity may harm your business’s reputation and cause financial stress. Use this guide to help you mitigate risks in case you become a victim of fraud.
