Macro Mondays: Credit Cards (Part 9 of 10)
Welcome to another edition of Macro Mondays here on GradMoney! We are almost through the 10-week series on credit cards, and today we address a very important issue to consumers: fraud protection and identity theft. Try as we may, the odds are good that we will have our credit card number stolen multiple times in our lives. Credit bureau data breaches in recent years have also made the likelihood a greater reality, but to what extent does the blame lie with the consumer? If our identity is stolen, who is responsible for fixing it? Today we will hopefully address these concerns and offer some solutions.
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Having a credit card does put you at slightly greater risk of identity theft. The reason: to apply, you have to provide your Social Security number, which could be accessed in a data breach. A criminal could also take over your account and use it to make purchases. But credit cards also come with protections against these problems as well as advantages over paying by cash, check or debit card.
General Loss, Theft and Fraud Protection
Credit cards protect consumers against check fraud and against the loss and theft of cash. If you lose your credit card, it’s usually not a big deal. Just notify your credit card issuer and it can close your account and open a new one for you. Some issuers allow you to freeze your card through an app so no one can use your account to make purchases, giving you time to find your card if you think you’ve simply misplaced it and don’t think it’s been stolen. If you find the card, you can unfreeze it in seconds. If not, you can request a new one with a new account number.
If someone steals your credit card, a quick call to your card issuer will shut access down. You won’t be held responsible for fraudulent charges. By contrast, if your cash is stolen you’re totally out of luck.
Having a checkbook or debit card stolen is an even bigger pain. You’ll have to freeze your checking account to prevent your money from being stolen, which may mean legitimate checks you recently wrote won’t clear. And you may have to open a totally new account and update any linked accounts and automatic payments that were associated with your old account.
Credit Cards and Identity Theft
Identity theft can occur when a criminal gains access to personal information such as your Social Security number, name, address and date of birth and uses that information to open an account in your name or steals financial information such as your credit card, debit card or bank account information and uses it to make fraudulent transactions.
If a thief opens a credit card in your name, the credit card company will sometimes notice the problem before you do, close the account and notify you by mail. Other times, you may not notice the fraud until you are declined for a loan because your credit score has dropped due to a large, unpaid, fraudulent balance. Keeping a regular eye on your credit reports and credit scores through the many free tools and apps that are now available – such as Credit Karma, Wallet Hub and AnnualCreditReport.com – is a good way to spot fraud before it has a major impact on your life.
If someone steals your card itself or even just your card data, fraudulent charges could show up on your account. To make sure you don’t have to pay for them, notify your credit card company as soon as you notice the charges. Review your statement at least once a month to make sure you recognize every charge.
Identity Theft Protection
In the wake of the Equifax data breach, some credit card companies have added new identity theft services to give their customers extra protection. For example, for credit card customers who opt in to its free service, Discover monitors risky websites for your Social Security number and monitors your Experian credit report for new accounts.
Credit card issuers proactively monitor consumers’ accounts for possible signs of fraud, which is why you might sometimes have a large or out-of-town purchase declined and have to call your card issuer to clear things up before the purchase will go through. Card issuers will also call, email or text their customers to ask about possible suspicious activity; you can then confirm or deny that the transaction is yours and the card issuer will respond appropriately. But make sure these requests are not phishing attempts before you respond.
Federal law limits your losses in the event of credit card theft as follows:
Report card loss or theft before your card is used: $0
Credit card number stolen, but card not stolen: $0
Credit card stolen and used: up to $50
Many credit card issuers go above and beyond federal requirements and have a zero liability policy whereby cardholders are not responsible for paying any fraudulent charges.
Fraud Protection: Credit Cards Vs. Debit Cards
Credit card fraud can disrupt your life less than debit card fraud. When someone makes a fraudulent purchase with your debit card, money disappears from your checking account – money you might have been counting on to pay your rent, utility bills and other essential expenses. You may have no other way to pay for those things while your bank clears up the fraud and restores the lost money to your account. Any payments you’ve scheduled or checks you’ve written might not go through in the meantime.
The rules are a less consumer friendly for debit cards.
These are the minimum protections available to consumers under federal law. Some banks may have more customer-friendly policies for their debit cards.
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