Virtual tools to prevent credit card fraud

With more than 60% of shoppers making purchases online, criminals are looking for ways to digitally access shoppers’ account information. As reports of data breaches and credit card fraud continue to rise, card issuers and consumers are turning to virtual tools to reduce the risk when making transactions. Here are a few tools you should consider adding to your virtual wallet.

Virtual credit cards

A virtual credit card is a 16-digit account number and CVV that allows you to make a single use online or over the phone, without sharing your actual account number with the merchant. Charges made on a virtual credit card appear on your card statement like any other charge.

Virtual account numbers (VANs) reduce online fraud by making it harder for cyber criminals to access your credit card account and use it. Some virtual cards allow you to set limits, such as an amount or time frame during which it will work, so the merchant can’t add on unauthorized purchases or unwanted subscription renewals.

Because you can set parameters for that VAN – to work with a specific retailer or date range, for example – it has far less value to hackers than the actual credit card account.

That protection is important, since credit cards were the most frequently identified method of payment in fraud cases last year, according to the Federal Trade Commission. “Although credit cards do offer protection against fraud, it’s still a hassle to have to cancel a card and start over with a new one if you get hacked,” says Howard Dvorkin, CPA and chairman of Debt.com. “With virtual cards, you use it once and then it’s done.”

If a criminal does steal your VAN, you have the same protections you enjoy with traditional credit cards under the Fair Credit Billing Act. That limits your potential liability for fraudulent purchases to $50, but most card issuers have a zero liability policy for consumers. That makes credit cards in general, and virtual cards in particular, one of the safest ways to make purchases.

Most credit card companies can issue a virtual card number instantly upon request. But, depending on the card issuer, you may have to make that request every time you want to make a purchase, which can be a hassle. You may also run into issues when you attempt to make a return, since merchants may be unable to easily refund your money to the card associated with the purchase. Also, you can only use virtual cards online and over the phone, so they won’t help with in-store purchases.

Some issuers, including Amex, make virtual cards available only to business cardholders. But Capital One and Citi provide virtual cards for consumers as well. Capital One cardholders can download the Eno browser extension that allows you to automatically generate virtual account numbers to use as you’re shopping. Citi’s website notes that Citi’s virtual account numbers makes your “credit card number virtually impossible to steal.” Charges made via a virtual account number appear on your regular credit card statement.

The new X1 Credit Card offers cardholders high-value rewards along with automatically expiring virtual credit cards that can reduce unwanted charges when subscriptions or free trials expire.

If your card doesn’t offer virtual credit cards, you may still be able to get the protection via other products such as PayPal Key, which allows users to create VANs to use for charges going to their PayPal account. The app Token offers a similar service, generating alternative account numbers for users who don’t want to share their credit information for certain purchases.

Digital wallets

Mobile wallets use technology called tokenization, which encrypts your credit card information so hackers can’t access your actual data. One key benefit digital wallets have over virtual cards is that you can use them in-store, at the point of sale. Tokenization is what Apple Pay, Google Pay and Samsung Pay use.

Cary Whaley, vice president of payments and technology policy at the Independent Community Bankers of America, said the rise of tokenization may ultimately make virtual account numbers obsolete. “That technology may be more effective from a consumer standpoint,” Whaley said. “What we’d all like is something that’s convenient and doesn’t change the way we bank, but that works behind the scenes.”

For now though, VANs are a useful tool to use against fraud.

Credit freeze

Another way to protect yourself from cyber criminals is by setting up a credit freeze, which locks down your credit, limiting who can access your credit report and preventing anyone from opening new credit accounts in your name.

For example, if fraudsters obtain your personal information in a data breach and want to use it to open up new credit accounts in your name, a credit freeze makes that much harder. But it also makes it impossible for anyone else to access your credit, so don’t attempt to apply for a new card or loan while a freeze is in place.

If you need to freeze more than one card, you may want to go through the credit bureaus. Until a few years ago, you had to be the victim of identity theft to freeze your credit via the credit bureaus, and in some states, you were charged a fee. But after the Equifax data breach in 2018, Congress passed a law allowing anyone to obtain a credit freeze, free of charge.

Card lock

If you believe a specific credit card account was compromised, you can usually put an instant freeze on that account through the card’s mobile app or by logging into your account online. Discover was the first to offer the ability to freeze your account as a card benefit. Now all major card issuers offer this as a cardholder benefit.

A credit card lock prevents new charges while allowing previously authorized charges to go through, and keeps third parties from making purchases on your account. If you suspect your credit card number has been compromised, you should contact your card issuer to report it and request a new card number. But a card lock is a quick, simple maneuver to protect your account in the meantime.

You can lock your card whenever you don’t want someone to make new charges, by the way. Most card issuers allow you to manage your credit card locks from your online account or mobile app. And most credit card locks still allow recurring payments to go through, so you can lock your credit card without missing a bill payment.

Fraud alerts

You also might consider setting up fraud alerts. If you suspect fraudulent activity or identity theft, you might want to go directly to the credit bureaus to set up an alert on your credit report. If you ask one of the three credit bureaus to do set up a fraud alert for you, they have to notify the other two credit bureaus to do the same, according to the FTC. The alerts last for one year and there is no charge for placing one on your credit report.

But if that seems like overkill, you may prefer to set up fraud alerts for your individual credit card accounts. For example, Citi lets you set up alerts by email or text to your mobile device. Amex, Capital One, Chase, Bank of America, and Wells Fargo all offer similar ways to set up alerts on your accounts. Once you opt in to receive these alerts, any charge that looks suspicious will trigger an instant message asking whether the charge was legitimate. If you’re using the issuer’s mobile app, you’ll need to enable push alerts to receive these notifications.

Bottom line

With credit card fraud on the rise, it’s smart to understand the tools at your disposal, and have them ready to use if the need arises. This may mean setting up virtual account numbers for certain charges, fraud alert notifications on your cellphone or via email, and the ability to freeze a credit card account, or all your credit, in an emergency. Fraud may be getting more sophisticated, but so are the tools to combat it – and all of them are free and easy to use.