Credit Card Fraud vs. Identity Theft: What's the Difference?

The terms card fraud and identity theft are often used interchangeably, but they're not the same. There are distinct differences in how fraud and identity theft are perpetrated, how they affect victims and what the process looks like.

In general, credit card fraud occurs when someone steals card information and uses it to make unauthorized purchases. In contrast, identity theft happens when a thief uses your personal information to assume your identity for one or more purposes. Let's dig a little deeper into each to gain a better understanding of what's at stake for consumers.

Credit Card Fraud

Credit card fraud is a form of identity theft but typically only affects one or more of the victim's open credit card accounts.

How it happens. Credit card fraud occurs when a thief gets his or her hands on a victim's credit card information. Thieves can do this by:

• Using a skimming device at an ATM or gas pump.
• Pulling data from files stolen in a data breach.
• Gaining access to an online account where the information is saved.
• Eavesdropping on an unsecure Wi-Fi network or website.
• Deploying phishing emails, phone calls or text messages.
• Stealing the physical card from your purse or wallet.

Once the thief has your card or card information, he or she could use it to make unauthorized purchases.

How bad it can get. In some instances, credit card fraud can have lasting effects, especially if it goes on for months or even years without the account holder noticing. But federal law limits your liability for unauthorized use of your credit card to just $50. Even so, many credit card issuers offer zero-liability fraud protection if you report the fraud in a timely manner, so you won't be on the hook for any fraudulent transaction that hits your account as long as you alert your issuer promptly.

Also, credit card issuers employ sophisticated measures to spot fraud and alert you. You may get a call, text or email with a request to confirm a purchase. If the transaction is fraudulent, the card issuer will decline the purchase, cancel the card and send you a new one.

"They actually have an interest in making sure that your information is secure," says Adam Dean, senior security specialist at cybersecurity company GreyCastle Security, "because it's technically their money that's being spent."

Time to recovery. If you or the credit card issuer catches the fraud early, it may be little more than a minor inconvenience. You may need to spend some time on the phone with your bank or credit union, and if you get sent a new card with a different number, you may need to update your payment information for recurring charges.

But otherwise, it may all be over within a matter of days. Alex Hamerstone, practice lead for governance, risk management and compliance for TrustedSec, a security consulting firm, says, "If my credit card is used fraudulently, I just report it to the credit card company, I get a new credit card and I move on with my life."

Identity Theft

Identity theft is an umbrella term that encompasses any crime where someone wrongfully accesses and uses another person's personal information for economic gain. While credit card fraud is one form of identity theft, it's only the tip of the iceberg.

How it happens. Identity theft occurs when someone manages to access personal information, such as a Social Security number, address, health insurance policy, birth date or bank account number, to assume your identity. Identity thieves can steal your data in several ways, including:

• Getting it from files stolen in a data breach.
• Gaining access to an online account where the information is saved.
• Eavesdropping on an unsecure Wi-Fi network or website.
• Deploying phishing emails, phone calls or text messages.
• Stealing your mail.
• Rummaging through your trash for documents with sensitive information.
• Stealing your wallet or purse.
• Using personal information you post online.

With the right information, says Hamerstone, "they can get credit in your name, open bank accounts, get access to medical services or take your tax refund."

How bad it can get. Unlike credit card fraud, other forms of identity theft aren't always easy to spot. If someone applies for a loan in your name, for instance, you may not learn about it until you credit and get denied because the loan went into default or was sent to collections.

If the fraudster commits multiple and varying forms of identity theft using your information, it can take even longer to get a full picture of the damage, stop it from happening and prove that it wasn't you.

Child identity theft, where a fraudster steals and uses a minor's personal information, can be especially damaging. "For people that want to steal identities, that's a great target for them," Hamerstone says. "Because oftentimes they won't know for up to 18 years when the kid goes and tries to open a credit card or to get a loan."

Time to recovery. Depending on the type and extent of identity theft, it can take anywhere between a few days and several years to fully recover. You may need to report the fraud to the police and other government authorities; replace your missing documents; request fraud alerts or freeze your credit; and file disputes with creditors, medical providers and the IRS.

Dean says, "You're trying to prove that you're you, which is a difficult thing to do when someone else has all that same information. You can't change very specific information about you and just move on."

The Social Security Administration allows you to get a new Social Security number if you can prove it's being used fraudulently. But even that won't give you a fresh start because employers, creditors and credit reporting agencies may still rely on your old number and other information you can't change – such as your date of birth and current and past names – to identify you.

As a result, identity theft can affect your life for years to come. In one case, for instance, a Los Angeles Times business columnist reported an identity thief resurfacing in his life 15 years after he was first victimized.

Credit Card Fraud Could Be a Stepping Stone to Identity Theft

Credit card fraud is typically localized to just one credit card . If the thief only manages to get access to your credit card information, chances are it won't escalate to full-blown identity theft.

If, however, someone gets access to documents or an account that includes more than just your credit card information, making unauthorized purchases with your card could be just the first step for the perpetrator.

So if you fall victim to credit card fraud, try to learn how the information was compromised. If you know for sure that only your card information was stolen, you may not need to worry about things getting worse.

On the flip side, if you have reason to believe the thief gained access to more personal data, it may be best to freeze your credit and monitor your identity.

Steps You Can Take to Prevent Credit Card Fraud and Identity Theft

There's no surefire way to eliminate the threat of credit card fraud and identity theft entirely. But there are some things you can do to reduce your exposure to their hazards.

Shred important documents. If you're getting rid of bank statements, old tax returns or any other document that contains personally identifiable information, shred it before you throw it out to prevent dumpster-diving thieves from stealing it.

Watch out for phishing scams. If you receive an email, phone call or text message asking for personal information, it might be a scam. Some thieves have perfected the art, creating emails that look like they come from a company you trust.

But if the sender's email address doesn't look right or they're asking you to provide a credit card number or some other data, call the company's main customer service line to verify.

Keep your Social Security card safe. Your Social Security number is the most valuable piece of information for identity thieves, so it's crucial that you keep it and the card it's on safe.

It's best to avoid keeping your card in your wallet or purse. Instead, consider purchasing a small safe or lockbox to store in your home, or renting a safe deposit box at your local bank or credit union. Only give out your Social Security number and other personal information when absolutely necessary.

Safeguard your mail. Collect your mail daily to reduce the potential for mail fraud. If you're heading out of town for more than a couple of days, consider requesting a hold from the post office or asking a trusted friend, family member or neighbor to collect it for you each day.

Also, take steps to reduce the number of documents with sensitive information that pass through your mailbox. For example, request paperless statements from your bank, credit card companies and investment firms. Also, consider dropping off mail containing personal data directly at the post office or a collection box rather than putting it in your mailbox.

Use caution with public Wi-Fi networks. If you're using the Wi-Fi network at the airport, a coffee shop or any other public place, it's possible for thieves to eavesdrop on the information you communicate online.

As a result, it's best to avoid doing anything that requires you to share personal data. If you have to, use a virtual private network to add a layer of security that can keep fraudsters from stealing your information.

While these tips aren't the only ways to protect yourself from identity thieves, being vigilant can go a long way to keeping your identity safe. By Ben Luthi, U.S. News and World Report, August 8, 2019