Credit card fraud detection techniques

Ever looked at your bank statement and noticed a charge you don’t recognize? You’re not alone: The Federal Trade Commission (FTC) reported 326,617 cases of credit card fraud in just the first three quarters of 2024—that’s up 3% from last year.

The consequences of fraud can also extend beyond financial loss, as you may experience damaged credit scores, difficulties in obtaining loans or credit, emotional distress, and time-consuming resolution processes. Thankfully, both financial institutions and consumers have developed powerful tools to fight back. Let’s look at how fraud happens, how to detect it, and what you can do to stay safe.

What you’ll learn

• 7 common credit card fraud tactics
• How credit card companies detect fraud
• How to detect suspicious activity on your own
• What to do if you’re a victim of fraud
• Best practices to prevent credit card fraud
• Take control of your financial security

7 common credit card fraud tactics

To avoid falling victim to fraud, you need to know how scammers operate. Here are seven common tactics.

1. Lost or stolen cards. If a thief finds or steals your card, he or she can make unauthorized purchases until it’s reported missing.
2. Data breaches and hacked accounts. Hackers infiltrate databases and steal thousands of credit card numbers at once.
3. Fake customer service calls. Scammers impersonate bank representatives and trick you into revealing personal information.
4. Social media and email phishing. Fraudsters send fake messages asking you to “verify” your card details on fraudulent websites.
5. Point-of-sale (POS) skimming and fake terminals. Card skimmers capture credit card data at gas stations and ATMs.
6. Digital wallet fraud. Criminals exploit mobile payment security gaps to make unauthorized transactions.
7. Triangulation fraud. Fake e-commerce stores collect payment details from unsuspecting shoppers.

How credit card companies detect fraud

Credit card issuers rely on advanced fraud detection systems to monitor transactions in real-time. These systems use AI (artificial intelligence) and machine learning to analyze spending habits and detect anomalies, such as a sudden high-ticket purchase. If something seems off, the system may flag or decline the transaction.

Geolocation tracking is another useful tool that helps verify that a purchase aligns with your actual location. If your card is swiped in New York but your phone is still in Los Angeles, that’s a red flag. Similarly, IP (internet protocol) address tracking is used for online transactions to make sure purchases are made from a familiar source.

To take security a step further, many financial institutions use multi-factor authentication for higher-risk transactions. You might get a one-time password sent to your phone or email to confirm a purchase. And when AI isn’t sure whether a charge is fraudulent, human fraud analysts can step in to review transactions and take action if needed.

How to detect suspicious activity on your own

Think of your credit card as your digital wallet. It’s important you keep an eye on what goes in and out. Financial institutions have fraud detection systems in place, but the sooner you catch fraudulent activity, the better your chances of stopping it before it becomes a bigger issue.

One simple way to stay ahead is by checking your statements regularly. Fraudsters often start small, charging just a dollar or two, before making bigger purchases. If you ever see a mystery charge, don’t ignore it. Cross-check with your receipts or recent orders, and if something doesn’t match, report it right away.

Setting up real-time transaction alerts is perhaps the most powerful fraud detection strategy. With push notifications, you’ll know instantly if your card is being used—even if you didn’t swipe it yourself. Customize these alerts to flag big purchases, international transactions or online orders so you can act fast if something seems off.

Another useful detection technique is to monitor your credit report. By law, you’re entitled to a free credit report annually from each of the three major credit bureaus. Use this to check for errors or fraudulent accounts. If you spot something suspicious, report it right away and consider freezing your credit to prevent further damage.

What to do if you’re a victim of fraud

Every second counts when dealing with credit card fraud. If you see an unauthorized charge, act immediately.

1. Call your bank ASAP. Fraudsters move fast, and so should you. Report the issue so your card can be locked and replaced.

2. Check for other unauthorized purchases. One fraudulent charge often leads to more. Scan your statements carefully.

3. Freeze your credit. Contact the three major credit bureaus (Experian, Equifax and TransUnion) to place a fraud alert or credit freeze, preventing new accounts from being opened in your name.

4. Report to the FTC. Help law enforcement track down fraudsters by filing a complaint at IdentityTheft.gov.

5. Monitor your credit and statements. Keep a close eye on your financial accounts for additional suspicious activity in the following months.

Best practices to prevent credit card fraud

Protecting yourself from credit card fraud starts with basic security habits. Always shop on secure websites—look for “https://” in the URL and avoid unfamiliar retailers with poorly designed checkout pages. Be cautious with emails—never click on suspicious links, especially those claiming to be from your bank or credit union, as phishing scams are one of the leading causes of fraud.

Also do your best to keep your card information private, even from close friends and family. If you write down your card details, store them in a secure place, and avoid saving them on untrusted websites or apps.

Securing your banking and payment accounts with strong, unique passwords and changing them regularly can make it more difficult for fraudsters to access your information. If your financial institution offers it, consider using biometric authentication (fingerprint or face ID) to add another layer of security to mobile banking apps.

Take control of your financial security

Staying ahead of fraud doesn’t require paranoia, just a little extra awareness. Many financial institutions offer instant transaction alerts which notify you the second your card is used. Enabling them will help make sure that you’re always in the loop. Also, remember to take just a few minutes each week to scan your transactions for anything suspicious. Catching small issues early can prevent them from becoming bigger problems down the line.

Choosing a financial institution with strong fraud protection can make all the difference in keeping accounts secure. Alliant Credit Union offers advanced security features like real-time transaction alerts, EMV chip technology, and 24/7 fraud monitoring to help detect and prevent unauthorized activity.

With a few simple safeguards and a trusted financial partner by your side, you can feel more confident in protecting your hard-earned money.