How Does Credit Card Fraud Protection Work?Credit card fraud is a huge problem for every party involved in card transactions. For credit card issuers, merchants and card transaction processors, credit card fraud was responsible for about $22.8 billion worth of losses in 2016 alone. For consumers, having your card stolen can be a huge pain to uncover, report and resolve. That’s why credit card users are protected from card fraud by a combination of laws, efforts from credit card companies and business owners, and tools that make it easy to keep tabs on your card activity. If you’re curious about all of the different kinds of credit card fraud protection and mitigation that keep card thieves at bay, as well as what you can do to protect yourself, keep reading.

How fraud protection works

There are several layers of defense that can stop credit card fraud from happening, starting with the credit card networks. The major card networks, like Visa and Mastercard, constantly monitor transactions for suspicious activity using algorithms that compare the data from each transaction with hundreds of signs that indicate a risk of fraud. Certain spending patterns, such as making purchases around 2 a.m. and executing multiple transactions with the same merchant in a short period of time, are highly associated with how criminals typically use stolen credit cards. The networks also judge transactions based on the cardholder making them, comparing their typical spending habits and location against the current transaction’s details, and use human analysts to manually adjust fraud detection algorithms on the fly. Once a credit card’s network decides how risky a transaction is, it sends that data to the card’s issuer, which makes the call on whether to authorize the charge or not. If your issuer denies a transaction, it may send a text or call to notify you that it just stopped a charge from going through and ask if the charge had your authorization, in order to check if the fraud risk the network assessed was just a false positive.

Card networks also enlist merchants to help with fraud protection, giving them guidelines to help spot criminal card activity. This can include what kinds of information merchants asks customers for, the data merchants collect and report to the networks as well as what to check to make sure the transaction is legitimate. For example, Visa instructs all merchants to match the name and number embossed on the card to the name and number listed on the receipt to find counterfeit credit cards.

When fraudulent transactions slip by the merchants and card issuers, don’t worry, you’re still protected by the law. If your physical credit card gets used without your permission, the Fair Credit Billing Act limits your liability for unauthorized credit card charges to $50 if you report the card as lost or stolen after the charges go through (though most credit card issuers have $0 liability policies that waive the $50 you would owe in this circumstance). Additionally, that liability drops to $0 if you report your card as lost or stolen before the charges go through, or if thieves use your credit card information to make purchases without stealing your actual card (e.g., the thief uses a skimmer). Most credit card issuers are willing to recognize a charge as fraudulent and remove it if you report it as such, but if your issuer drags its heels or refuses, you can write a letter disputing its actions. While charges are in dispute, you do not have to pay them off until the dispute gets resolved.

How you can help protect yourself

While fraud protection technology is pretty sophisticated, it still isn’t perfect, but it’s easy to pick up the slack with a few simple habits.

Check your statements: The most important thing you can do is to check your credit card statements at least once a month, going over each charge to make sure it’s legitimate. If you find a purchase that you don’t recall making, call your credit card issuer about it immediately.

Use spending alerts: To help you spot fraudulent card use as soon as it happens, you can also set up spending alerts on your cards, which send you a text or email every time a transaction above an amount of money that you specify appears on your account.

Alert your issuer of upcoming travel: To avoid the opposite problem — having your legitimate charges mistakenly flagged as fraudulent — let your card issuer know when you plan to travel, especially if you’re going to another country. Location can be a major factor that card issuers use when detecting fraud, and traveling to another state or country without warning can throw off your issuer’s predictions. This counts if you’re traveling by car, as well, as gas stations are a hotspot for credit card fraud and using one several hundred miles away from where you live can look alarming if your issuer isn’t prepared for it.

Report lost or stolen cards immediately: In the event that your card goes missing or gets stolen, you’ll want to report it as soon as possible. A couple of issuers offer features that allow you to lock or unlock your card using your smartphone, like Discover Freeze it or Citi Quick Lock (a NextAdvisor advertiser), making the process much easier. On the other hand, other issuers require you to call using the phone number on the back of the card to report it lost or stolen. To make sure you know who to call at all times, you’ll want to save that number in your phone. This will allow you to call the trusted number (and not have to rely on Google or any other search engine) in the event that your card is lost or stolen. You can also download your credit card issuer’s mobile app, if it offers one, to ensure you’re always able to get trustworthy assistance.

With all of these ways to stop fraud in its tracks, it’s no wonder that using a credit card is one of the safest ways to shop. For more on credit card security features you should know about, follow our credit cards blog.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.