Editorial Policy

Those Burned by Fraud Become Credit-Phobic, Study Finds

Marcia Frellick

October 23, 2012

Once bitten by fraud, many cardholders become credit shy, according to recent research.

An October 2012 study, “Global Consumer React to Rising Fraud: Beware Back of Wallet,” from electronic payment company ACI Worldwide and research firm Aite Group polled 5,200 card users about credit card fraud and its impact in 17 countries. Overall, one in four who responded said they have been victimized by credit, debit or prepaid card fraud in the past five years.

Among the detailed findings was this revelation: More than half of those who experienced fraud — 56 percent — said the experience was enough to make them switch from credit and debit cards to cash or an alternative payment form in certain situations (among U.S. consumers, 37 percent said they reacted this way). Among those who received replacement cards after fraud, 46 percent worldwide said they used the new card less than they had used the original.

This is certainly concerning news for financial institutions, as they are essentially losing business due to fraud. Yet less-frequent card use could have consequences for consumers, too. It’s easy to see why a fraud victim might be wary of using plastic, but stuffing your cards in the back of your wallet may work against you.

Here are some things to think about before you bench your plastic.

  • If you lose your credit card, you’re protected: That’s not the case with cash or some other alternatives. You can get a replacement card from your issuer, and, under federal law, you’re liable for $50 at most if someone makes fraudulent purchases on the card.
  • You won’t rack up the rewards: By paying with cash instead of using a rewards credit card, you’re missing out on accumulating miles, merchandise and cash back.
  • You won’t have the same protections when you shop: Credit card agreements include protections if you receive damaged merchandise and may offer protections on returns that other payment methods don’t. But you have to purchase the item or service with the credit card to use that protection.
  • Your credit score may take a hit: Using your card slightly less often won’t hurt your credit scores much. However, if your cards are the only form of credit in your portfolio, and you banish them from your wallet entirely, you might see your credit standing fall. Lenders like to see regular evidence that you can borrow money and pay it back on time. If you eliminate all that evidence, they might be less likely to do business with you.

Rather than relegating your card to the back of your wallet, consider these proactive tips if you’ve been burned by fraud:

  • Set up fraud alerts: This is a notice that the credit bureaus attach to your credit report. When you, or someone else, tries to open up a credit account in your name, the lender is supposed to verify the action with you first. Note that the lender should, but doesn’t legally have to do this.
  • Check into credit monitoring/ID theft protection services: Some banks will keep track of changes to your credit information and alert you immediately if it sees potential fraudulent activity. Sometimes a home insurance policy includes ID theft protection. Be aware that most outside credit monitoring services will charge fees or may start out free and then charge fees if you forget to cancel.
  • Freeze your credit:  This involves writing to the credit bureaus and asking to lock down your credit, which prevents lenders from opening new lines in your name. If you want to open credit for yourself, you have to get the freeze lifted.  If you’ve been a victim of identity theft, you can get a credit freeze for free in most states. For details on how to freeze your credit, visit the websites of all three credit rating bureaus: Experian, Equifax and TransUnion. Be aware that it can take days to get the freeze lifted, which could be inconvenient if you need credit quickly.