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Protecting Your Credit History from Fraud

A credit history is a record of an individual as a borrower. It documents all instances of a citizen applying for credit and the decisions made on those applications. Additionally, a credit history reflects information about late payments, defaults, and repayment progress. The better the credit history quality, the higher the chances of obtaining new credit on more favorable terms.

However, it is important to note that a good credit history attracts the attention of banks and fraudsters. In recent years, cases of credit fraud have increased. This is a common form of deception, and both people who apply for loans and those who have never considered borrowing money are at risk. Credit fraudsters often present themselves as experts fluent in professional terminology and knowledgeable about banking. They give the impression of being well-informed and understand how bank software operates, which confuses potential victims.

Fraudsters may also use someone else’s personal information to take out loans in the name of unsuspecting citizens. Therefore, it is essential to understand which credit schemes are most common, how to avoid falling into scammers’ traps, and how to prevent identity theft prevention. 

How Does Credit Fraud Occur?

Credit fraud is one of the most common types of financial scams. In this type of fraud, fraudsters use your personal information to obtain loans or conduct financial transactions. Their main goal is to access and use your data for personal gain.

Fraudsters target data that allows them to confirm your identity and perform financial transactions:

  • Social Security numbers are often used to open loans and credit accounts in someone else’s name.
  • Driver’s license or passport information allows them to verify identity when opening bank accounts or applying for credit.
  • Credit and debit card information can be used for purchases, cash withdrawals, and other transactions.
  • Online banking and social media passwords provide access to your finances and personal information.

Their methods are diverse and increasingly sophisticated:

  • Phishing. Fraudsters often send emails or messages that look like official notifications from banks, online stores, or government services. For example, a message may contain a link to a “security page” for data verification, and upon clicking it, the user is asked to provide login, password, or card details. It’s important to remember that legitimate financial institutions never request personal information via email or SMS. If such a message is received, it is highly recommended not to click on the links but instead contact the company directly.
  • Data breaches. Database breaches of large companies are becoming more frequent, and customer information can fall into the hands of criminals. For instance, according to IBM research, a company’s average data breach cost is about $4.88 million, impacting millions yearly. In such cases, setting up credit monitoring can be helpful as it tracks attempts to open new accounts or loans in the borrower’s name.
  • Card skimming. This is a physical method where fraudsters install discreet devices on ATMs or payment terminals, such as those at gas stations. These devices read card information when a transaction occurs. Skimming attacks may be inconspicuous to the user, so it is recommended to use ATMs and terminals located in secure areas and check for suspicious overlays.
  • Vishing. This is a type of phishing conducted over the phone. The fraudster, posing as a bank employee or law enforcement officer, may ask for your card details or even request you transfer money to a “safe account” to protect against “fraud.” Banks never ask for card details over the phone and do not request questionable transfers.
  • Physical document theft. Losing physical documents, such as a passport or driver’s license, also gives fraudsters access to personal information. According to a Javelin Strategy & Research study, identity theft caused approximately $43 billion in losses in 2022. Therefore, if personal documents are lost, it is recommended that you contact the relevant authorities immediately to block and replace them.

Essential Tips for Credit Fraud Protection

To avoid becoming a victim of credit fraud, it is important to know some steps to protect your credit history: 

Check Your Credit Report Regularly

Regularly checking your credit report helps detect suspicious activity early and protect your finances. Credit reports often contain errors that can lower your score or show signs of fraud, such as unfamiliar accounts or credit inquiries made in your name.

You can receive a free report from each of the three major bureaus—Equifax, Experian, and TransUnion—once a year through AnnualCreditReport.com. To monitor your credit history throughout the year, request a report from one bureau every four months.

If you find inaccuracies, immediately file a dispute with the credit bureau. Enrolling in credit monitoring services is also helpful, as it promptly notifies you of any changes in your report, allowing you to take action quickly.

Enable Two-Factor Authentication (2FA)

Turning on two-factor authentication (2FA) is a great way to make your accounts safer. With 2FA, you need to verify your identity in two steps: first, enter your regular password and then provide an extra code. This code is usually sent to you by text message or created by an app.

The idea behind 2FA is straightforward: even if someone steals your password, they can’t get into your account without the second code, which only you have on your device. This makes it much harder for anyone to access your account without permission.

Use Strong, Unique Passwords

Using strong and unique passwords is important for keeping your personal information safe. A good password should mix uppercase and lowercase letters, numbers, and special characters. Avoid using easy-to-guess options like names, birthdays, or simple patterns like “1234” or “password.”

By making different passwords for each website and app, you lower the chance of all your accounts getting hacked if one of them is breached. To make this easier and safer, you can use a password manager. This is an app that stores your passwords securely, fills them in automatically, and helps you change them when needed. It can also alert you if a password has been compromised and suggest a new one.

Avoid Phishing Scams

Phishing scams are tricks used to steal personal information, such as passwords and credit card numbers. Scammers often send fake emails, texts, or phone calls that look like they’re from banks or well-known companies.

These scams usually start with emails with catchy subject lines, like claiming you’ve won something or a problem with your account. Inside the email, there’s often a link to a website that looks real but is designed to steal your information.

To protect yourself from phishing attacks, follow these tips:

  • Don’t click on links. Messages from people you don’t know may have dangerous links or attachments. Even if an email looks familiar, be careful.
  • Check the sender. Look closely at the sender’s email address in emails from your bank. Real banks use their official domains. If unsure, contact the bank directly using their official website or phone number.
  • Verify callers. If you get a call asking for personal information, ask who is calling. Don’t give out information over the phone; instead, call back using the company’s official number.
  • Check the website address. Before entering any information on a website, make sure the address starts with “https://” and look for a lock icon that shows it’s secure.
  • Watch for mistakes. Phishing emails often have spelling errors and awkward phrases, which can signify that the message is fake.

Freeze Your Credit if Necessary

Freezing your credit is a way to control who can see your credit information. When your credit is frozen, lenders can’t access your credit report, which stops them from approving new loans or accounts without your permission.

Getting a credit freeze is easy and free. You need to contact one of the three main credit bureaus: Experian, Equifax, or TransUnion. You can reach them through their websites or by phone. You’ll have to provide personal information, like your name, address, and Social Security number. After you make your request, the credit bureau will confirm the freeze within 1 to 3 business days and give you a PIN code to use later.

You should consider freezing your credit if:

  • You lose personal documents.
  • You hear about a possible data breach.
  • You are a victim of identity theft or phishing.

Another option for protection is a fraud alert. This tells lenders to check your identity before opening any new accounts. You can set up a fraud alert through the credit bureau, and it lasts for 90 days but can be extended if needed.

Avoid Credit Repair Scams

Credit repair fraud is a common problem. Some companies promise to raise your credit score for a fee quickly. It’s important to remember that legitimate credit repair takes time and effort. No one can remove accurate negative information from a credit report.

When choosing a credit repair company, caution is necessary. Research is essential to avoid scams. Look out for the following signs:

  • Guarantees: Promises to remove negative entries are a red flag for fraud. Legitimate companies cannot guarantee such results.
  • Upfront payments: A request for payment before services are provided should raise concern. The law requires that services be performed before any payment is taken.
  • Disputing accurate information: If a company encourages disputing accurate data, it may damage your credit history and is ineffective.

Conclusion

Financial institutions are constantly improving their data protection systems for clients. However, fraudsters are always active, and much depends on the borrowers themselves. Individuals can—and should—protect their credit history and financial reputation. Modern tools and a legal framework are in place to support this. However, suppose someone voluntarily shares confidential information, such as banking or credit card details, with criminals and loses money. In that case, it is unlikely that they will be able to recover these losses.