Credit Fraud

Credit fraud is a category of financial crime in which someone uses another person's identity or existing credit account information without authorization to obtain credit, goods, or services, or to make charges that the account holder did not approve. It can involve taking over an existing account, such as a credit card or loan, or opening a new account using stolen personal information like a Social Security number, name, and date of birth. Credit fraud is closely related to identity theft, but the terms are not interchangeable: identity theft is the broader misuse of personal information, while credit fraud specifically targets credit accounts and creditworthiness. The Fair Credit Reporting Act (FCRA) and related federal laws define how consumer reporting companies must handle disputed information and how consumers can limit liability for unauthorized charges. When credit fraud occurs, the affected person may not notice immediately. Unauthorized accounts or charges often appear on credit reports from the national credit reporting companies. Under the FCRA, consumers have the right to dispute inaccurate or fraudulent information, and consumer reporting companies must investigate disputes. A fraud alert or security freeze can be placed on a credit file to restrict access, though these measures have specific legal requirements and procedures. The FCRA also limits a consumer's responsibility for unauthorized charges on credit cards, typically to a maximum of fifty dollars, and many card issuers waive that amount. The Fair and Accurate Credit Transactions Act (FACTA) added provisions for fraud alerts, identity theft reports, and enhanced accuracy standards for consumer reporting companies. Common forms of credit fraud include account takeover, where a fraudster gains access to an existing account and changes contact information or makes purchases; new account fraud, where accounts are opened using stolen personal data; and card-not-present fraud, where card details are used for online or phone transactions without the physical card. Data breaches at businesses can expose personal information that enables credit fraud. Detection often relies on reviewing account statements, monitoring credit reports, and responding to notifications from financial institutions. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) publish educational materials about credit fraud, identity theft, and consumer rights. Reporting credit fraud generally involves contacting the financial institution, filing a report with the FTC at IdentityTheft.gov, and potentially filing a police report. The FTC's IdentityTheft.gov provides a personalized recovery plan. The FCRA requires consumer reporting companies to block fraudulent information from credit reports in certain cases, such as when an identity theft report is provided. Credit fraud is a federal crime under statutes including the Identity Theft and Assumption Deterrence Act, and it can also violate state laws. Understanding the definitions and procedures helps consumers recognize and respond to unauthorized credit activity.

A consumer receives a collection notice for a department store credit card they never opened. After pulling their credit reports, they find an account with a past-due balance that they did not authorize. They file a dispute with the credit reporting company and an identity theft report with the FTC.