In my last article about protecting your financial information, I focused on how to avoid identify theft. An ounce of prevention is worth a pound of cure. But how can you limit the damage if preventative measures aren’t enough?
Here are 3 tips that can help you reduce credit card fraud liability.
1. Use credit not debit cards
This tip might be a bit controversial among the “all credit cards are bad” crowd, but there are good reasons to use a credit card rather than a debit card, as long as you can handle credit responsibly!
Debit cards are not necessarily more likely to be stolen; and you might even think a debit card is more secure than a credit card because they require a PIN to complete an in-person transaction. However, in a scenario where your data was compromised, credit cards offer much better fraud protections.
As long as the customer reports the loss or theft in a timely manner, his/her maximum liability for purchases made after the [credit] card disappeared is [only] $50. The Electronic Funds Transfer Act now gives debit card customers the same protection from loss or theft – but only if the customer reports it within 48 hours of discovery. After 48 hours, the customer’s liability rises to $500; after 60 days there is no limit.
In other words, you have much less time to notice and report the theft of a debit card, and your total liability can end up much higher, than with a credit card.
Furthermore, if someone did manage to steal your debit card, that money comes straight out of your account and is unavailable (to pay bills with, for example) until your bank has investigated the fraud and returned your money to you.
In contrast, with a credit card, that money has not yet left your account and you’re not short the stolen money while the charge is in the process of being disputed.
So if someone stole your debit card and it took you more than 2 days to notify the bank, you could easily be out $500 with no recourse and anything above that amount could take days (or more) to be returned to you. A stolen credit card is still a hassle to deal with, but the liability caps for a compromised credit card maxes out at $50 and it won’t prevent you from paying next month’s rent.
tl;dr: Credit cards have stronger limits on your liability in case of bad charges, and also provide an additional fraud-protection layer between a fraudulent charge and your money.
2. Check your bank statements regularly
Many of us are in the habit of just paying our bills when they come in without looking them over carefully. For convenience, some people prefer to put their bills on auto-pay, so they never miss their due dates.
The paying-the-bills-on-time part is great (definitely keep doing that!), but if you’re not actually checking your statements to make sure you’re getting billed the correct amount, things could be slipping by you.
(See Point #1 above for why checking your billing activity even more regularly might even be a good idea!)
Look both for unknown charges as well as charges that are different from what you expect. “Auto debit” payments, especially, could be tacking on extra charges you never agreed to (for example, cable companies charging you equipment fees for a modem or router you aren’t actually renting from them).
If you find something on your statements that looks suspicious, try to find out who the vendor is and call them to try to first resolve the issue directly. (It’s definitely happened to me that I’ve not recognized the name of a payee on my credit card statement and thought it was fraud … only to discover it really was a legit charge.)
If a call to the payee doesn’t go anywhere and you think you have grounds to dispute the charge, call your bank or credit card company as soon as possible. If you suspect your card has been stolen, you need to call ASAP so they can issue you a new card number and limit your liability for additional charges.
tl;dr: Actually read your statements to make sure there aren’t any unknown charges or vendors billing you for incorrect amounts. Contact the vendor directly to resolve any issue, before filing a dispute.
3. Monitor your credit reports
Even if you check your credit card and bank statements every month, it’s possible an identity thief could be racking up debt in your name and you’d never see any bills. If those statements aren’t coming to your house, how would you know?
That’s where checking your credit report comes in handy.
A law passed in 2003 (in an amendment to The Fair Credit Reporting Act, or FCRA), made it possible for consumers to get a free copy of each of their credit reports (one for each agency) every year.
How do you check your credit report for free? You know those TV ads with the catchy jingles telling you to check your report, the ones singing about getting your free credit report … yeah, you actually don’t want to use those sites if you’re looking for your free report. Most of the advertised sites are actually trying to sell you a monthly service that will auto-bill you if you don’t cancel. (See #2 about checking your monthly statements carefully for auto-debited bills!)
To get your absolutely free, no-strings-attached, credit reports, you will want to go to https://www.annualcreditreport.com/, which is the only official US government-endorsed website for getting your free credit reports.
Once you have your credit report, read it over and check the details of all the debts and revolving credit lines associated with your social security number. You should check this to make sure no one has stolen your identity to take out loans or credit in your name!
Checking your credit reports regularly will help ensure that you catch any issues early, before too much damage is done.
Pro tip: You don’t need to request all of your reports at the same time. There are three main credit reporting agencies, and you can space out your requests to every four months. This makes it more likely that you could catch identity theft early.
What To Do If You Suspect Credit Card Theft
If you suspect your credit cards have been compromised, call your card issuer immediately to dispute the fraudulent charges and/or have them issue you new card numbers, depending on the issue. Make sure to update all your auto-pay accounts, so you don’t get hit with late fees if your payments get declined.
If there are errors on your credit report, file disputes with the credit reporting agencies through their formal means; you may need to file a police report. Follow the instructions and don’t delay. If you believe your identity has been compromised, you can also set up credit monitoring (often free if you’ve been a victim of identity theft and have filed a police report) or take the extra step to “freeze” your credit so no additional cards or loans can be taken in your name.
Hopefully you will never be a victim of credit card fraud or identity theft, but the above steps are simple ways to minimize and address the impact if it ever does.