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Common Types of Credit Fraud and How to Prevent Them

The following is a contributed article from LendingTree and does not reflect the opinion of Service Credit Union. 

Paying with a credit card may be convenient, but the ease of swiping a piece of plastic versus handing over cold hard cash opens us up to a wide new world of theft. According to a 2022 study from the San Francisco Federal Reserve, consumers use credit and debit cards for the majority of payments, so it’s more important than ever to be aware of credit fraud schemes and how to avoid them.

Common types of credit fraud and how they work

Credit fraud comes in a few different flavors, but the basics are the same: The thief uses your information to make fraudulent credit card purchases or take out a fraudulent line of credit in your name. But understanding the specifics of different fraud schemes can help you steer clear of them.

Application fraud

Many types of credit fraud revolve around a credit card itself, or its information, being stolen. Application fraud, however, starts with the theft of your personal information, such as your name, home address and Social Security Number.  

 Using these details, the credit fraudster can open a new line of credit in your name and use the new account to make expensive purchases or take out a cash advance. Because the information the fraudster used to open the account is identical to yours, there’s no tip-off to the bank that the account is fraudulent. And unfortunately, it can be difficult to figure out if this sort of theft has taken place until you see the damage on your credit report.

Card-not-present fraud

Card-not-present, or CNP, fraud occurs when a thief uses your credit card information to make a purchase online, over the phone, or in some other way in which the physical card doesn’t need to be present.  

Because the thief has stolen the credit card information rather than the card itself, again, this kind of fraud can be difficult to spot until it’s already caused damage.


Phishing is the way that some fraudsters access the information they need to participate in application fraud, CNP fraud and other forms of theft. Basically, they find a way to get you to willingly, if unwittingly, hand over your personal information. 

In our digital world, phishing schemes often occur online. The fraudster may design an email that looks almost identical to one you’d get from your credit union or bank, the government or another trusted institution. The email may even direct you to a webpage that looks official, but is not. In this way, the thief might trick you into giving them your personal information, which fraudsters can then use to make purchases or transfer money to their own accounts. They might even sell your information to others. 

 Phishing scams can also occur over the phone or through social media.


Skimming is a tactic used to steal your credit card information from the physical card at a point-of-sale terminal or ATM. The thief installs a device that reads and records your information and PIN.  

 Gas stations are particularly dangerous for skimming fraud: With so many transactions going on throughout the day at each pump, usually without an attendant present, a skimming device can go unnoticed for some time. To avoid this possibility, the FBI recommends pre-paying inside at the counter before you pump.

Account takeover

Account takeover, or ATO, fraud is just what it sounds like: Once a fraudster has all of the required information, they use it to take over your credit card or bank account and lock you out. For instance, they might change your password or PIN and then use the account as they see fit.  

Account takeover fraud can also apply to email accounts or social media profiles.

Take these simple steps to avoid credit fraud

While there are many different ways fraudsters can wreak havoc on your financial life, there are also some simple steps you can take to decrease your vulnerability: 

  • Protect your information. When using your debit card, always cover the terminal with your hand when entering your PIN. Only enter your credit card number on trusted websites or secure phone lines, and consider shredding any mail with sensitive information in it.  
  • Set secure passwords. These days, almost all our sensitive information is available online behind a password — and with hackers and thieves dedicating computer power toward brute-force attacks, even passwords that seem strong may be vulnerable to cracking. Using a new password for each login, and employing a random string of letters, numbers and characters, can help ensure your information remains secure no matter how hard hackers try. Consider using a password manager to help make this more manageable. 
  • Check your credit report annually. Federal law gives you the right to get a free credit report once a year from any of the three nationwide credit bureaus: Equifax, Experian and TransUnion. To order yours, visit or call 1-877-322-8228.   
  • If you suspect fraudulent activity, freeze your credit. A credit freeze renders your credit report inaccessible to lenders, which means new accounts can’t be opened. In other words, it can stop a fraudster in their tracks. It does take a little bit of footwork on your part to set up; you’ll need to contact all three credit bureaus — Experian, TransUnion and Equifax — and ask each of them for the freeze. But you can unfreeze your credit at any time, and the freeze will not impact your credit score. 

Although you can never do away with the threat of credit fraud altogether, with vigilance and caution, you can substantially decrease your odds of falling victim to one of these attacks.