As more of our lives and digital transactions move online, it's more important than ever to be vigilant when it comes to protecting your personal information. Cybercrime is on the rise, and while you may have already taken some steps to detect issues by enabling account or text notifications, you need additional layers of security to ensure that fraud never happens in the first place.
Here's everything you need to know about fraud prevention and how you can protect your bank accounts, credit cards, and keep your identity safe from theft.
What is Fraud Prevention?
Fraud prevention is a system for recognizing transactions or activity that is commonly linked to cybercriminals and acts to flag and prevent these actions from occurring to you, your business, bank accounts, or your customers.
Fraud prevention works by using automated routines that can detect suspicious online behavior, and then protects or locks your account before it can be infiltrated. Generally, this software is looking for questionable activity patterns based on frequency, location, and transaction size.
Fraud Prevention vs. Fraud Detection
The biggest difference between fraud prevention and fraud detection is timing. Fraud detection alerts you after questionable activity has taken place, while fraud prevention seeks to put firewalls in place before thieves ever gain access to your information. And it’s important to understand how much protection they each offer you, because you need both to keep your information secure.
- Fraud detection would be a system that flags recent transactions on your bank or credit card account that is out of state or not in character with your usual spending habits and then notifies you of the occurrence. This doesn’t necessarily protect your account from breaches, but merely serves as a warning for potential theft
- Fraud prevention would be a system that notifies you of a data breach and recommends that you change your password immediately or contact the credit institution for a new card number altogether. Which is much more proactive.
Most of the effort that goes into fraud prevention solutions centers upon understanding the latest state of malware and tactics used by cybercriminals. Then through analysis, it uses this information to mitigate as many future vulnerabilities to consumers as possible. But there’s also a lot you can do to protect yourself from the most common types of fraud.
6 Common Types of Fraud
Fraud can take on many different forms. Here's how you can protect yourself from the six most common types of fraud:
1. Identity Theft
The Federal Trade Commission (FTC) estimates that over 9 million Americans have had their identities stolen every single year. You don’t want to be one of them.
Identity theft commonly leads to thieves impersonating you to make purchases with your credit cards or withdrawals from your bank accounts. It can even be used to open new accounts or apply for loans without you ever knowing it. What’s worse, identity theft criminals can do a lot of damage with surprisingly little personal information.
If they can get their hands on your name, Social Security number, or bank account numbers — usually through unsecured communications like an email — then they have everything they need to make fraudulent purchases or open new accounts.Protect these three pieces of information whenever you transact online:
One of of the best ways to protect yourself from identity theft is to increase your email security with stronger passwords, two-factor authentication, and robust spam filters.
2. Credit and Debit Card Fraud
Credit or debit card fraud occurs when someone manages to get your account number and starts making purchases or make cash withdrawals. Unfortunately, this has become more commonplace with hackers stealing millions of account numbers from large consumer credit databases such as popular stores (TJX, Home Depot) and financial institutions (Capital One).
The best way to prevent this type of fraud is to check your transactions regularly. Every week if possible. Fraudulent activity can take place for weeks or even months without you even realizing it. Don't rely on passive alert systems as your only line of defense. Comb through your account activity and credit reports regularly.
3. Debt Collection Fraud
Debt collection fraud is when criminals will contact consumers directly, usually by phone, and demand that payments are due. Generally, this is under a completely illegitimate claim that there is some unpaid debt that is owed. These fake debt collectors will often use tactics to intimidate or even threaten their victims if they do not comply.
If you're contacted by these companies, ask your bank or credit card company to verify that the information is correct before responding.
4. Mortgage Fraud
With so many consumers being late on mortgage payments or looking for relief financially, criminals will sometimes pose as loan officers and commit what’s known as mortgage fraud. Usually, this is simply an attempt to extract personal information from you like your social security number or bank account information.
In some more extreme circumstances, mortgage fraud can also lead to real refinances with a phony or illegitimate financial institution. When this happens, the criminals would not only have the title to your home, but they could also modify your loan terms without warning, skim your equity, or create several other nightmare financial situations.
5. Prize and Lottery Fraud
Prize and lottery fraud has been a common criminal scheme for decades. Generally, a fake representative will contact you by phone or email, to inform you that you’ve won a substantial prize. However, the catch is that they need a wire transfer from your bank or credit card to secure it. Of course, never do this.
More recently,, foreign countries have gotten in on the action of sending out illegitimate claims of money or investments (such as the infamous Nigerian Prince scheme). Even though these claims are completely false, many Americans still fall for them often losing hundreds of thousands of dollars in the process. The old saying still applies:
"If it seems too good to be true, it probably is."
Be careful when it comes to contests and sweepstakes, especially if you didn't enter in the first place.
COVID-19 ALERT: There is even a growing number of scams involving outstanding COVID-19 stimulus payments. If you or a loved one is ever contacted by phone or text about providing missing bank account or personal information to receive a stimulus check, report the incident immediately. It is fraudulent.
6. Fake Charities
Fraudsters have even stooped so low as to trick people into giving money to false charities. Similar to real charities, they might set up a website or collection page for a noteworthy cause, sometimes even supporting it with a heart-wrenching (but fake) story about a person in need. But then after you donate, the site and any signs of its existence disappear without a trace.
This has also happened on crowd-funding sites like Kickstarter and IndieGoGo. Giving to others is great. But verify that your money (and data!) are going where they can actually do some good, especially if you donate online.
How to Prevent Fraud
It seems like new types of fraud pop-up every day. And there are a ton of fraud prevention solutions on the market. But real fraud prevention is about more than just the occasional credit check. The best way to protect you and your loved ones from fraud is to take ownership of your online information.
If you need a place to store all of your important medical and financial documents and personal information, either for yourself or a loved one, consider using a service like Pillar Life. Pillar uses multiple layers of industry-leading protection so that no one except you will be able to access your information, giving the safety and confidence you deserve. Keep your documents and data secure — while still close at hand — with a robust organization, storage, and secure sharing platform.