Credit Fraud: What It Is and How It Is Reported

Defining Credit Fraud

Credit fraud is a category of identity theft involving credit accounts, credit reports, or credit applications. It occurs when someone uses another person's personal information to obtain credit, make purchases, or access an existing account without authorization. The term covers both new account fraud and account takeover, as well as unauthorized transactions on an existing account.

The Fair Credit Reporting Act (FCRA) establishes rights for consumers whose credit information is inaccurate or the result of identity theft. The Fair and Accurate Credit Transactions Act (FACTA) amended the FCRA to address fraud alerts and identity theft reporting. These laws do not prevent fraud, but they define reporting and dispute processes.

Credit fraud may also include the unauthorized use of a credit card number for a single transaction, even if no new account is opened. In that case, the consumer typically reports the transaction to the card issuer and may not need a fraud alert unless other accounts are affected.

Common Types of Credit Fraud

New account fraud often surfaces when a collection notice or credit report review reveals an unfamiliar account. Account takeover may appear as changed addresses, new authorized users, or unauthorized charges.

Card-not-present fraud is common in e-commerce and may not involve a credit report entry unless the account becomes delinquent. Synthetic identity fraud is more complex and can affect a real person's credit file if their information is mixed into the fictitious identity.

Each type may require different reporting steps, but the underlying issue is unauthorized use of credit or credit-related personal information.

• New account fraud: an account is opened in someone else's name.
• Account takeover: an existing account is accessed and used without permission.
• Card-not-present fraud: a card number is used online or by phone without the physical card.
• Credit report fraud: false information is added to a credit file, or an unauthorized inquiry appears.
• Synthetic identity fraud: a fictitious identity is created using a mix of real and fake information, sometimes tied to a real person's Social Security number.

How Credit Fraud Is Detected and Reported

Consumers may detect credit fraud by reviewing credit reports from the national credit reporting companies. AnnualCreditReport.com is the centralized source for free credit reports under federal law. Unfamiliar accounts, inquiries, or addresses can be indicators.

Financial institutions and creditors also monitor for suspicious activity and may contact consumers about potential fraud. Under the FCRA, consumers have the right to dispute inaccurate or fraudulent information directly with credit reporting companies and with the furnisher of the information.

IdentityTheft.gov, operated by the Federal Trade Commission, allows consumers to create an identity theft report and a personal recovery plan. An identity theft report can support an extended fraud alert and other rights.

Fraud Alerts on Credit Reports

A fraud alert is a notice placed on a credit report that asks creditors to take reasonable steps to verify identity before extending credit. An initial fraud alert lasts one year and can be requested by consumers who suspect fraud or identity theft.

An extended fraud alert lasts seven years and requires an identity theft report, such as one filed with the Federal Trade Commission at IdentityTheft.gov. The extended alert is available to consumers who have been victims of identity theft.

When a fraud alert is placed with one national credit reporting company, that company must notify the other two. The alert appears on credit reports and can affect how creditors process applications. A related concept is a credit bureau fraud alert, which is simply a fraud alert placed through a credit reporting company.

Consumers can also request a fraud alert on a credit report for a child or dependent in some circumstances, though procedures vary. A fraud alert does not block access to credit reports for the consumer.

Fraud Alert vs. Credit Freeze

A fraud alert asks creditors to verify identity before granting credit. A credit freeze, also called a security freeze, restricts access to a credit report so that new creditors generally cannot view it without the consumer's authorization.

A fraud alert is temporary and automatic sharing across the three national credit reporting companies is required. A credit freeze must be requested separately with each company and remains in place until the consumer lifts or removes it, subject to state and federal rules.

Neither a fraud alert nor a credit freeze prevents all fraud, but they change how credit applications and report access are handled. The choice between them depends on the consumer's circumstances and the level of restriction desired.

Disputing Fraudulent Information

Under the FCRA, consumers can dispute incomplete or inaccurate information in their credit files. A dispute can be filed with a national credit reporting company and with the company that furnished the information.

When a dispute is filed, the credit reporting company must investigate, generally within 30 days, and correct or delete inaccurate information. If the dispute involves identity theft, an identity theft report can help support the claim.

Consumers may also place a fraud alert on their credit report while a dispute is pending. The dispute process is separate from criminal reporting, though a police report may be useful in some cases.

Federal Protections and Resources

The Fair Credit Reporting Act gives consumers the right to access credit reports, dispute errors, and place fraud alerts. The Federal Trade Commission enforces the FCRA and provides consumer education at consumer.ftc.gov.

The Consumer Financial Protection Bureau offers information about credit reports, fraud alerts, and security freezes at consumerfinance.gov. USA.gov provides general government resources on identity theft and credit.

IdentityTheft.gov is the federal government's one-stop resource for identity theft recovery. It provides checklists, sample letters, and an identity theft report that can be used with credit reporting companies and creditors.