What is a Fraud Alert and How Do You Place Them on Credit Reports?

Did you know that credit card fraud costs the economy over $1 billion each year?

Credit card fraud refers to any fraudulent or unauthorized use of a payment card. Payment cards include credit cards and debit cards.

It is possible to use payment cards securely, especially given recent advances in chip technology. However, any payment card user can be at risk of fraud or–more seriously–identity theft.

Luckily, you can take certain precautions for avoiding credit fraud. One of these involves setting fraud alerts on your accounts.

What is a fraud alert, and why should you set one up? In this post, we answer these questions and more so that you can stay secure.

Keep reading for more information!

What is Credit Fraud?

Credit fraud occurs when someone uses your payment card without your permission. It’s possible to become a victim of fraud if you use either a credit or debit card (or both).

Someone with access to your financial details could make an unauthorized purchase or transfer of funds, for example. Or, they could use your debit card to take out a payday loan and take the funds right away.

So how do people get access to these details?

You could physically lose your card or someone could steal it, but you don’t have to misplace your card to experience fraud.

Fraudsters can also get a hold of your financial details, including account numbers and PINs, without your physical card. They can do this via ATMs, hacking, and other digital means.

Some cases of fraud can lead to identity theft. Identity theft occurs when someone steals your personal information–like your social security number or birthday–in order to open new financial accounts.

These fraudsters can then make unauthorized purchases and fund transfers using these accounts.

Identity theft is not as rare as most people think. In 2014, 18 million people fell victim to identity theft!

The Impact of Credit Fraud

When you experience credit fraud, it’s easy to feel violated. After all, when credit fraud occurs, someone deliberately steals your personal information for their personal gain.

It may feel particularly impactful if you are typically very careful about protecting your personal and financial details.

Credit fraud can impact anyone, however, no matter how cautious you are–especially in this digital age of online transactions.

Fraud can have more than just emotional repercussions. Credit fraud can deplete accounts and rack up debt.

It can even impact your credit score! If fraudsters deplete your checking accounts, for example, you may miss payments on other bills (including other credit cards).

Fraud can also max out your credit cards, spiking your credit utilization. Missed payments and high credit utilization can negatively impact your credit score.

How Do You Know You’re a Victim of Fraud?

So how can you tell if someone has snatched your financial details?

Some cases of fraud become evident right away. The majority of credit card companies, for example, will alert card users of any suspicious activities on their account.

About 50% of individuals who experience credit fraud find out through their financial institution.

You may also catch fraudulent activity yourself when perusing your credit report or recent card statement. This may take the form of an account you never opened or unauthorized purchases.

Approximately 1/5 of credit fraud victims find out about the fraud by inspecting their statements or credit reports.

In other cases, however, credit fraud may be more subtle. You may not be aware of it for quite some time, especially if you are a victim of identity theft. You may only figure it out when you go to take out a personal loan from a bank and get denied due to a drop in your credit score.

At that point, you would need to resort to bad credit loans, as you wouldn’t be able to repair your credit score overnight.

For this reason, it’s important to inspect your credit report and statement activity regularly. We also strongly recommend setting up fraud alerts, which we discuss below!

What to Do If You’re a Victim

The fact that credit fraud can impact your credit score makes a lot of people nervous. As it should–good credit takes time to build, and it can take even longer to recover from lost credit!

Of course, it is possible to keep your credit score intact if you experience fraud.

Contact Financial Institutions

The first thing you should do is notify your financial institutions the moment you notice fraudulent activity (if they haven’t done so already). This applies to credit card companies, brick-and-mortar banks, and online accounts like PayPal.

Don’t be nervous about doing this. Most credit card companies have “zero liability” policies.

These policies mean that you won’t have to pay for any fraudulent activity on your account should they occur.

Federal law also specifies that you aren’t liable for most fraudulent charges, especially if you report your card as missing before those charges occur. If you report after, you will only be liable for $50 (for debit card charges).

Learn more about the Electronic Fund Transfer Act here.

Change Passwords

Once you’ve reported credit fraud, make sure you change all passwords, PINs, and other access codes for your accounts. Most credit card companies will also send you an entirely new credit card with a fresh set of digits.

Pay close attention to your accounts and statements after you make the fraud report. Report any additional activity you notice.

It’s also possible to freeze your account, which means that nobody will be able to open any new accounts under your name for a given time.

Inspect Your Credit Report

Request a copy of your credit report and check it closely for fraudulent activity. This is particularly important if you feel you’ve been a victim of identity theft.

If you do notice fraudulent activity on your report, you’ll have to contact one of the three credit bureaus: Equifax, Experian, and TransUnion. These institutions are the ones that keep track of your credit score.

When you contact these bureaus, you’ll be able to set up a fraud alert.

What is a Fraud Alert?

A fraud alert lets anyone inspecting your credit report know that you may be a fraud victim.

It tells lenders and creditors in particular that they should be extra careful. Lenders, for example, should make sure it’s actually you opening an account (and not a fraudster).

Fraud alerts can keep creditors from making any drastic changes to your credit score.

It’s important to note that credit report fraud alerts are different than credit card fraud alerts. Credit card fraud alerts typically refer to alerts you set up with your credit card company to let you know if someone’s getting into your account.

These types of alerts are still important, especially if you want help in monitoring your account activity in the future!

Credit report fraud alerts are also not the same as credit freezes, which prevent anyone (including lenders) from accessing your credit or opening a new account.

There are a few types of fraud alerts. You’ll need to know these before you put one in place.

Types of Fraud Alerts

The first, most basic kind of fraud alert is called an initial fraud alert. This lasts for ninety days.

Once your initial fraud alert expires, it is automatically removed from your score report. However, if you are anxious about identity theft or fraud after the alert is removed, you can renew it for another 90 days.

The other type of fraud alert is an extended fraud alert. You can only use this alert if you have been the victim of identity theft.

To prove your identity has been stolen and that you qualify for an extended fraud alert, you’ll need to file a report with the Federal Trade Commission (see below). You may also have to file a report with local police officers.

Extended fraud alerts last for seven years.

Most victims of credit fraud will make use of the 90-day initial fraud alert.

How to Set One Up

If you are setting up a 90-day initial fraud alert, you will have to contact a credit bureau directly.

You don’t have to notify all three (TransUnion, Equifax, and Experian), because each is required by law to notify the other two about fraud alerts.

Reach out to any of the bureaus online or by calling their customer service lines directly.

When you contact a bureau, ask for the appropriate fraud alert. You may also want to freeze your credit if you are worried about the perpetrator opening a new account without your permission, but this is not necessary.

You also don’t have to be a victim of fraud to freeze your credit.

Once you’ve contacted a bureau, your fraud alert should be in effect right away. You are also entitled to at least one extra copy of your credit report when you set up an alert–take advantage of this!

Look over your credit report and if you notice any errors, report these immediately.

You can always cancel your fraud alert at any time in your 90-day window. You can either let the alert expire after 90 days or renew it.

Do Fraud Alerts Impact My Credit?

Credit card fraud can be anxiety-inducing, particularly when it comes to your credit score itself.

You may be nervous about the fraud’s impact on your score in the moment, particularly if you have been the victim of identity theft. If you have bad credit as it is, you may be especially anxious.

Remember that you can take the right steps to protect your credit score in the wake of fraud. Most financial institutions will also support you every step of the way after fraud occurs.

But do fraud alerts themselves impact your credit score?

No! They are designed only to inform creditors and lenders that you may be (or are) the victim of credit fraud.

They are there to help protect you from additional fraud, so have nothing to do with your credit itself.

Extending a credit fraud alert won’t impact your credit either. The same goes for requesting an extended fraud alert.

Fraud Alerts and Identity Theft

What happens if you are the victim of identity theft?

If you believe your identity has been stolen, you should report the theft in two ways. First, reach out to your local police force. (This is often required when filing for extended fraud alerts.)

Next, file a claim that your identity has been stolen through the Federal Trade Commission. We recommend creating your Identity Theft Report online through FTC, which also will give you a “personal recovery plan.”

Once you have filed your claim and contacted local police forces, contact a credit bureau and request an extended fraud alert. You may also want to initiate a credit freeze to prevent further fraudulent activity.

Lastly, change all of your contact information and cancel any unauthorized accounts.

How to Prevent Credit Fraud

If all of this discussion of fraud alerts sounds intimidating, don’t worry! There are plenty of steps you can take to prevent credit fraud and identity theft.

1. Change Passwords Often

If you regularly manage your financial affairs online, make sure you are taking extra precautions. Change passwords and PINs often, and store this information in a secure location.

Some people may even want to change their credit card numbers every couple of years.

It’s also important to be using strong digital passwords. Learn more about building an indestructible password here.

2. Dispose of Details Mindfully

If you receive paper documents containing financial details, dispose of these carefully. Shred or burn statements, for example.

When you do receive your statements in the mail, look them over thoroughly. Make note of any suspicious activity and contact your bank immediately.

3. Be Wary When Traveling

A lot of international travelers fall victim to credit fraud after using international ATMs. If you travel regularly, be cautious when using ATMs or completing any financial transactions.

Keep financial details secure, and be mindful of where you store credit cards on your person when traveling.

Final Thoughts

If you are a victim of credit fraud, you have options. The first thing you should do is contact relevant financial institutions to report the fraudulent activity.

Next, reach out to credit bureaus and put some fraud alerts in place.

What is a fraud alert? Fraud alerts signal to creditors and lenders that you may be a victim of fraud. They don’t stop fraud from happening necessarily, but they are a line of defense you should make use of.

Remember to file a claim with the Federal Trade Commission if you’ve experienced identity theft.

Sometimes it can be hard to understand the relationship between credit cards and credit scores. Learn more about this here! Here are some other articles you might find helpful:

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