Credit card fraud may begin with one unauthorized transaction, but its consequences can spread throughout a consumer’s financial record.
A suspicious purchase notification is often the first sign of credit card fraud. The cardholder contacts the issuer, reports the unauthorized transaction, and receives a replacement card. Once the charge disappears, it may seem that the problem has been resolved.
Unfortunately, removing an unauthorized purchase does not always repair the damage caused by the fraud. Incorrect balances, late payments, fraudulent accounts, collection entries, and unauthorized credit inquiries can remain on a consumer’s credit reports long after the original incident.
When that happens, credit card fraud has become a credit reporting problem.
Credit Card Fraud Can Take Different Forms
Credit card fraud generally involves either the misuse of an existing account or the creation of an entirely new account.
Existing-Account Fraud
Existing-account fraud occurs when someone obtains information connected to a legitimate credit card and uses it without the cardholder’s permission. This may involve unauthorized purchases, cash advances, balance transfers, or attempts to take control of the account.
The victim recognizes the account but disputes specific activity associated with it.
Although the issuer may remove the unauthorized transactions, the fraud may have already affected the account’s balance, available credit, minimum payment, or payment history. Those changes can create inaccurate information on the cardholder’s credit reports.
New-Account Fraud
New-account fraud occurs when someone uses another person’s identifying information to apply for a credit card.
The victim may not know that the account exists until a collection letter arrives, a lender denies an application, or an unfamiliar account appears on a credit report. By then, the fraudulent account may already show a high balance, missed payments, or a charge-off.
New-account fraud can be particularly harmful because the account may remain undetected for months.
How Credit Card Fraud Can Damage a Credit Report
Fraud-related credit reporting errors can take many forms, including:
- A credit card account the consumer never opened
- Unauthorized charges included in a reported balance
- Late payments caused by disputed transactions
- A charge-off connected to a fraudulent account
- Collection activity for debt the consumer did not incur
- Hard inquiries resulting from fraudulent applications
- Incorrect authorized-user information
- An account that has been mistakenly associated with the consumer
The Consumer Financial Protection Bureau identifies accounts resulting from identity theft and incorrect account statuses as common credit report errors. Consumers have the right to dispute information they believe is inaccurate or incomplete.
Correcting an individual transaction is not necessarily the same as correcting the credit reporting associated with it. Consumers should verify that the issuer also updated the account balance, payment history, status, and any other information furnished to the credit reporting agencies.
Reporting the Fraud May Be Only the Beginning
Contacting the card issuer is an important first step, but the issuer’s internal fraud investigation may not address every credit reporting consequence.
After reporting the fraud, consumers should review their credit reports for:
- Accounts they do not recognize
- Incorrect balances
- Late or missed payments
- Charge-offs
- Collection accounts
- Fraudulent credit inquirie
- Accounts that should be marked as disputed
- Incorrect personal information
Because the information reported by Equifax, Experian, and TransUnion may differ, consumers should review reports from all three credit reporting agencies.
Victims of identity theft can also report the incident through IdentityTheft.gov and obtain a personalized recovery plan. The CFPB recommends considering fraud alerts or security freezes to help protect against additional fraudulent activity.
Disputing Fraudulent Credit Information
A credit reporting dispute should clearly identify each item the consumer believes is inaccurate.
For example, the consumer may need to explain that:
- The entire account was opened fraudulently
- The account is legitimate, but certain transactions were unauthorized
- Fraudulent charges caused an incorrect balance
- Late payments resulted from an unresolved fraud investigation
- A collection account concerns debt created through identity theft
Supporting documentation may include:
- A copy of the credit report with the disputed information identified
- An identity theft report
- Correspondence with the card issuer
- Account statements
- Fraud investigation results
- Proof of the consumer’s correct address
- A police report, when applicable
- Written confirmation that unauthorized transactions were removed
Consumers may dispute inaccurate information with the credit reporting company and with the business that supplied the information. The dispute should include enough detail to identify the account, explain the error, and support the requested correction.
Keeping copies of all correspondence is also important. A written timeline can help document when the fraud was discovered, when each company was contacted, what information was provided, and how the companies responded.
When the Bank and Credit Report Tell Different Stories
A card issuer may tell a consumer that its fraud department has resolved the matter while the credit report continues to show an outstanding balance, late payment, or charge-off.
This can occur when unauthorized transactions are removed but related information is not fully updated. It may also happen when a debt collector or another company continues relying on outdated account records.
Consumers should request written confirmation of the issuer’s findings whenever possible and compare that confirmation with their current credit reports. If inconsistencies remain, the documentation may support a more detailed dispute.
When Fraudulent Debt Reaches Collections
Fraudulent credit card debt may be transferred or sold to a collection agency. The victim may then receive letters or phone calls concerning an account that was never authorized.
Ignoring those communications may allow the problem to continue. A consumer may need to dispute the debt with the collector while also disputing the collection account with the credit reporting agencies.
Paying a fraudulent debt simply to stop collection activity may not remove the account from a credit report. It can also make the history of the dispute more difficult to explain. Consumers should carefully document the fraud before deciding how to respond.
Identity Theft Information May Qualify for Blocking
Federal law provides a process through which identity theft victims may request that qualifying fraudulent information be blocked from their credit reports. The CFPB explains that blocking is a procedure used to remove debts and other credit information resulting from identity theft.
A block request is different from falsely claiming that legitimate debt resulted from identity theft. Consumers should only submit accurate information and genuine identity theft documentation. Filing a false identity theft report can create serious legal problems.
When Legal Assistance May Be Appropriate
Many consumers are able to correct credit reporting errors through the dispute process. However, legal assistance may become appropriate when a card issuer, debt collector, or credit reporting agency repeatedly verifies information that is demonstrably connected to fraud.
A Texas identity theft attorney may review the consumer’s credit reports, dispute correspondence, identity theft documentation, investigation results, and evidence of resulting losses.
Legal review may be particularly important when unresolved reporting has contributed to:
- A mortgage, auto loan, or credit application denial
- An apartment or housing denial
- A higher interest rate
- Lost access to credit
- Collection activity or a lawsuit
- Significant out-of-pocket expenses
- Other measurable financial harm
Consumers who disagree with the result of a credit report dispute may have additional options, including adding a statement to their file or evaluating whether legal action is available.
Confirm That Every Error Has Been Corrected
Resolving an unauthorized transaction does not always restore the consumer’s credit history.
After receiving a correction, consumers should confirm that all related information has been updated, including:
- The account balance
- Payment history
- Account ownership
- Account status
- Credit inquiries
- Charge-offs
- Collection entries
Continued monitoring may also be necessary. Incorrect information can reappear or be reported under the name of a different collector or account servicer.
Credit card fraud may begin with one unauthorized transaction, but its consequences can spread throughout a consumer’s financial record. A complete response requires addressing both the original fraud and every inaccurate credit entry left behind.
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