One of the most common ways people commit credit card fraud is by using a stolen card number. However, there are many other ways to commit this crime that don’t involve stealing a card. What are some of these methods?
The how long does an extended fraud alert stay on a consumer report is the question of how people commit credit card fraud. What happens if you accidentally trigger alerts?
How Do People Defraud Credit Cards? (And Why You Accidentally Trigger Alerts)
on October 17, 2021 by Gary Leff
After writing about proposed legislation in New York that would require banks to let you redeem your accumulated points even if they decided to close your account, I had several conversations with readers about the types of activities that a bank might consider risky, leading them to decide they don’t want your business.
I was reminded of something I wrote three years ago based on a presentation by Steve Lenderman, Fraud Operations Lead for Paypal, at a credit card industry conference where I spoke: a talk about how people commit fraud against financial institutions by Steve Lenderman, Fraud Operations Lead for Paypal. He highlighted why having a large number of authorized users, as well as making mid-cycle payments to a card, may seem to be fraud. And bad actors’ actions seem suspicious when they are properly carried out by the rest of us.
Fraudsters establish false identities, and it’s a lot simpler than most people think. They’re utilizing a mix of actual data and manufactured information to create a person who doesn’t exist financially or digitally.
- For those who know what they’re doing, obtaining social security numbers is simple. Prior to 2008, social security numbers were not randomized, and they are still generated using an algorithm.
- The most often targeted social security numbers are those of youngsters and the elderly, and he advises freezing your children’s credit files.
- Everyone’s information is public. After the Equifax hack, but even before that, using social security numbers, dates of birth, and mother’s middle name as proof of identity has become useless.
This is how a ghost borrower emerges. The fraudster establishes a false persona, obtains a fake ID, and chooses a fake social security number. They enter a shop, such as Target, and are given a credit card at the register. The shop clerk isn’t searching for fraud; instead, they’re rewarded for completing the application.
- When you apply, a credit file is created.
- They’ve most likely been denied credit.
- They repeat the process two or three times with various issuers. The file now has additional information.
- A bank will eventually accept you with a modest limit. Although the bank faces a low danger (because to the low limit), the ‘person’ now exists.
There are cards with $500 limitations that are very simple to get. After that, the individual is targeted for additional cards. They don’t spend the $500 since the identification is worth more than the credit lines. As payments are paid, their credit lines grow.
The ‘person’ may apply for credit, establish bank accounts, buy insurance, sign up for medical coverage, and get driver’s licenses and passports.
- Authorized users help speed up the procedure. They’ll pay to be added as an authorized user to an existing genuine account. They employ ‘legalized brokers,’ which are credit restoration services.
- The FICO score may be improved when these additional authorized user accounts report to the credit bureau. Because individuals sell their approved user adds, it’s not unusual to find accounts with 70 or more authorized users.
- FICO scores will rise 30-60 points every 10-21 days (depending on reporting pace). So they’ve been sitting on it for six months and have a 750 score. The approved users are then promoted to main cardholders. A potential credit risk is someone who is an authorized user on 70-80 accounts, and having 10 or more authorized users on your own cards is a fraud red flag.
Large banks are simpler to conceal than tiny credit unions since they have millions of clients. Synthetics are responsible for 85 percent of identity theft. There are $355 million in credit card debts due by individuals who don’t exist (and this is up eight-fold over the last 5 years).
Each year, 6 million new credit files are created with little or no information or history. With overlapping social security numbers, there are 20 million legitimate identities. There is no one to report the fraud to, and there is no one to ask about collections. The majority of this is written off as a credit loss.
These fictitious identities also apply to reward accounts. They use the bank for transactions and receive incentives in the process.
Customers transfer money from one account to another. They use their $10,000 card to shop at Macy’s for $10,000 in merchandise, then put in a $20k payment from a bank account with $50 in it. They now have extra credit to spend the next day at the shop before the $20,000 payment bounces. One of the reasons why banks may flag mid-cycle payments is because of this.
There are other merchant rings that obviate the need for Macy’s or Best Buy to act as a middleman. The retailer makes a $10,000 charge and then sends the cardholder a cheque for the difference (mins merchant fees). Alternatively, they may employ fake merchants – becoming a small business with credit card processing is simple.
Credit restoration services may be used to protect fake identities by using the capacity to contest errors with credit bureaus. Negative elements are removed from a report when certain institutions are unable to finish their inquiry and reply within 30 days. People will keep disputing the same issues until the institution fails to react in a timely manner.
Credit reports that seem to have been exploited for fraud in the past are eventually identified.
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