Credit card scams: What are they and how to avoid them

Understanding how credit card scams work is a first step toward protecting yourself against this type of fraud. Here are some common examples, so that you know what to look out for.

Synthetic identity scams

A synthetic identity is a combination of real and fake information, says the National Credit Union Administration (NCUA). A common example is when a scammer uses a stolen Social Security Number (SSN) alongside a fake address, birth date or name. Together these create an entirely fake identity. The reason scammers use real and fake information is so they can apply for credit and create financial history that appears legitimate.

Synthetic identity can harm a victim's credit, according to the NCUA. Say a scammer takes out a loan using a real Social Security number (SSN) then doesn't make payments on the loan. Missed payments can affect the real owner of the SSN even if the name attached to their SSN is fake. Be on the lookout for incoming mail with someone else's name on it sent to your home.

Credit card interest rate reduction scams

Telemarketers promising lower interest rates for a fee are often scams, warns the Federal Trade Commission (FTC). Scammers may also attempt to convince victims that they have special connections with major banks, and that the savings will help pay off debt faster. They may even promise money-back guarantees.

However, the FTC's Telemarketing Sales Rule (TSR) prohibits companies from collecting fees before settling clients' debts. The FTC advises consumers to call the bank directly to settle debts. Credit cards typically have a customer support number on the back. If you get a rate-reduction call, your best bet is to hang up.

Phishing scams

A phishing scam is a type of wire fraud where scammers pretend to be a reputable business, according to the FTC. They target people through text, email or phone. They may convince victims of suspicious activity on their account or payment issues in an effort to steal credit card numbers or SSNs.

Scammers often disguise themselves as legitimate businesses or websites by changing a single letter, symbol or number, says the Federal Bureau of Investigation (FBI). For instance, it might be an email from a business you've made purchases from in the past, but a closer look will reveal that the name is misspelled, or their logo is slightly off.

If you think you may've clicked on a phishing link, the FTC recommends updating your security software and running a scan.

Spyware

Spyware is a software program that allows criminals to secretly monitor a victim's computer, according to the National Institute of Standards and Technology (NIST). It can secretly record what the victim types, websites they visit and their private chats. Criminals can use spyware to obtain sensitive information like passwords, personal identification numbers (PINs) and credit/debit card numbers.

Carnegie Mellon University's (CMU) Information Security Office explains that spyware attacks can lead to identity theft. Spyware may redirect victims to fraudulent sites, giving criminals even more control over their computers, where important credit card and banking information might be stored. Signs your device is infected with spyware include slow system performance, programs crashing, frequent pop-ups, strange desktop icons and browser function keys not working properly.

Spyware can be difficult to get rid of once installed, according to the Federal Deposit Insurance Corporation (FDIC). If you fall victim to spyware, the Cybersecurity & Infrastrucure Security Agency (CISA) recommends running a full scan on your computer with anti-virus software. If your anti-virus software only finds spyware, but doesn’t remove it, you should consider getting a legitimate software product to remove the spyware, the CISA adds.

Credit card scams and fraud can happen any number of ways, says the the FTC. Fraud can be as simple as stealing a physical credit card or stem from an online breach that eventually leads to identity theft. To help keep your card and banking info secure, here are some tips to consider.

Check a company's reputation before doing business with them

If you're about to do business with a new company, make sure they're legitimate before giving them any sensitive information, says the FTC. Check for their reviews online and look for any complaints against them.

The FBI advises consumers to get the company's physical address, not a P.O. box. Call the seller and see if the number works, too. You may not want to do business with anyone who won't give you this information. In addition, be cautious with special investment offers through unsolicited emails.

Carry only the card you need

The FTC advises carrying cards separately from your wallet and only bringing the card you need for a specific errand. If your wallet or purse is stolen, it'll minimize the information the thieves steal.

Be vigilant with in-person transactions

Keep an eye on your card when the cashier has it, says the FTC. Draw a line above the total amount on the receipt in case someone tries inflating it later. Also, don't sign blank receipts.

Be cautious with online transactions

Websites can be set up quickly, warns the FBI. So don't let a flashy page fool you. Before you check out, check for misspellings in the URL, and make sure it starts with HTTPS. And at checkout, consider making online purchases with a credit card rather than debit. It's easier to dispute charges on credit cards. Additionally, a padlock icon next to the website URL may suggest increased security for transactions but take it as one security check of many.

Check your billing statements

Monitor your billing statements regularly, says the FTC. Keep your receipts and make sure they match charges to your account. Notify your bank of any charges you don’t recognize immediately. Another good practice is to tell your card issuer if you'll be traveling so that they don't flag any transactions. If you lose your card, says the FBI, call your card issuer immediately.

Falling victim to a credit card scam can be stressful and scary – but there are several resources out there to help you if you’ve been scammed. Here are a few examples of what you can do if you think you've been scammed.

Call your card issuer

Call your financial institution immediately if your card is lost or stolen, says the FTC. Banks often have a 24/7 service that specifically handles these issues. Reporting the loss means you're no longer liable for unauthorized charges. Check with your home or renters insurance carrier to see if they cover stolen credit or debit cards.

Check if your SSN has been compromised

If you believe your SSN has been compromised, check the earnings posted to your Social Security Statement, recommends the Social Security Administration. You can view this statement for free at the Social Security Administration website. Make sure your reported income is accurate. This can be an effective way for people to determine if they're the victim of synthetic identity fraud Also, be on the lookout for incoming mail with someone else's name on it sent to your home.

If you believe someone is using your SSN to work, get your tax refund, or other abuses involving taxes, contact the Internal Revenue Service (IRS) at 1-800-908-4490 or visit their Identity Theft Central page.

Check your credit report at least once a year

You should check credit reports at least every 12 months to guard against identity theft, advises the Consumer Financial Protection Bureau (CFPB). You can order a free credit report once a year from the three major credit bureaus (Equifax, Experian, and TransUnion), says the Social Security Administration. You can also make a single request for all three reports at AnnualCreditReport.com or by calling 1-877-322-8228. However, the CFPB recommends you may want to rotate your requests throughout the year between the three bureaus so that you can keep an eye on your credit throughout the year, for free.

You can also contact Equifax, Experian, and TransUnion and ask them to place a freeze on your credit reports, says the CFPB. A freeze can prevent lenders from accessing your credit file unless you lift the freeze for that lender or a specific period of time. Typically, lenders won’t offer you credit if they can’t access your credit reporting file, so a freeze can prevent a scammer from opening new accounts in your name. Freezes are free.

File an identity theft report

If someone steals your identity, you can file a report with the FTC. Aside from a freeze, as previously mentioned, you also have the right to place a fraud alert for one year on your credit reports. This ensures creditors will take extra precautions to vet who applies for credit in your name.

You can also have the three credit bureaus remove fraudulent charges from your credit report. Send a copy of your FTC Identity Theft Report when you report the fraudulent activity.

Additionally, if a scammer gets a hold of your password or username, be sure to update that information. If you use the same password on other websites, change those as well.

Contact the authorities

USA.gov provides a free tool to help guide you on where to report your scam. Fake emails, websites and malwares can also be reported to the FBI’s Internet Crime Complaint Center (IC3). If you're the victim of an international scam, you can report it on econsumer.gov. Notifying these agencies helps them track patterns and prevent scams.

Some insurance companies offer an identity theft protection plan. It may not only help recoup stolen money, but it might also help repair your identity if it's compromised. Plus, an identity theft protection plan may include credit and financial account monitoring that alerts you to suspicious activity and helps catch fraud before it spreads.

Reach out to your insurer to see if they offer identity theft insurance or an identity theft protection plan. Protection varies from insurer to insurer so be sure to ask about the types of coverage their plans come with.