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Last year alone, MasterCard and Visa generated a sales volume of more than $1.735 Trillion, from the circulation of approximately 1.3 Billion credit cards across the United States. With the average American having four credit cards which combined give them an average line of credit of $19,000.

The credit card industry is enormous. There are an average of 50.1 million credit card transactions per day totalling $4.75 Billion. So this industry leaves tons of opportunity for various types of fraud activity. In fact it is estimated that over $150 Billion of the total $1.735 Trillion dollars charged on credit cards was fradulent in one form or another. According to this statistic this fraud approximately accounts for approximately 9% of all credit card activity! This is totally shocking!

Credit Card fraud has skyrocketed now that more and more people are using the internet to make credit card purchases. The most common form of fraud occurs when the card is not present and only a number, expiration date, and authentication code are provided for the transaction. These types of transactions are usually online purchases, over-the-phone transactions, and through mail order.

In fact these forms of credit card fraud have become so common that an entire new language of terms has been developed to describe this activity. Words such as “skimming”, “shoulder surfing”, and “phishing” are all new terms which describe ways in which money can be stolen off your credit card.

Skimming describes the process in which a device is used to copy the magnetic stripe encoding off of a card. This is one reason card holders are cautioned against using ATM machines that look unusual. However all it takes is a couple of seconds to read the magnetic strip off of a card, so a waiter or a store clerk could easily steal your credit card magnetic strip code with an additional two-second swipe.

All they need to do is read the magnetic strip on the credit card with a magnetic strip encoder and then rewrite this information onto either a blank magnetic strip card or onto a gift credit card using a writable encoder.  This type of  skimmed card can be used at gas station pumps or even at grocery store checkout line scanners when transactions take place without the clerk even looking at the card.

The information stored on the magnetic strips of credit cards is as follows:

• Start sentinel — 1 character
• Format code=”A” or “B” — 1 character (alpha only)
• Primary account number — up to 19 characters
• Separator — 1 character
• Country code — 3 characters
• Name — 2-26 characters
• Separator — 1 character
• Expiration date or separator — 4 characters or 1 character
• Discretionary data — enough characters to fill out maximum record length (79 characters total)
• End sentinel — 1 character
• Longitudinal Redundancy Check (LRC), a form of computed check character — 1 character

Shoulder surfing refers to the method in which a fraudster obtains a PIN number by standing near a cardholder at an ATM machine. In some cases, the scam will occur after the PIN has been entered, with the thief distracting the person withdrawing money with a free newspaper. When the cardholder turns away, an accomplice quickly withdraws money.

Phishing refers to e-mail messages randomly sent out to trick customers into disclosing credit card numbers, account passwords or banking information. It is this type of theft that is causing the most problems. These fraudulent e-mail messages pretend to be from well-known companies. A recent study by Gartner of 5,000 adults in the United States estimated that 24.4 million Americans were tricked by phishing e-mail messages in 2006. Statistics from Phishtank, an antiphishing network, found that last month alone some 77,709 phishes were sent out, with 19 percent originating in the United States, 15 percent in France, 14 percent in Turkey and 10 percent from South Korea.

Carding is a term used for a process to verify the validity of stolen card data. The thief presents the card information on a website that has real-time transaction processing. If the card is processed successfully, the thief knows that the card is still good. The specific item purchased is immaterial, and the thief does not need to purchase an actual product; a Web site subscription or charitable donation would be sufficient. The purchase is usually for a small monetary amount, both to avoid using the card’s credit limit, and also to avoid attracting the bank’s attention. A website known to be susceptible to carding is known as a cardable website.

Credit fraud can fall into one of five categories:

Counterfeit credit card
Lost or Stolen Cards
No-Card Fraud
Non-Receipt Fraud
Identity Theft Fraud

The percentage that each type of credit card fraud represents is described below:

Counterfeit credit card: Makes up for 37% of all funds lost through credit card frauds. To make fake cards criminals use the newest technology to “skim” information contained on magnetic stripes of cards and to pass security features such as holograms.

Lost or Stolen Cards: Cards stolen from their cardholders or lost by them account for 23% of all card frauds. Often, cards are stolen from the workplace, gym, and unattended vehicles.

No-Card Fraud: Comprises 10% of all the losses and is completed without the physical card in hand. This can happen by giving your credit card information on the phone to shady telemarketers and deceptive Internet sites that are promoting the sales of their non-existent goods and services.

Non-Receipt Fraud: Is responsible for 7% of all losses. It occurs when new or replaced cards mailed by your card company are stolen during the process of being mailed. However, this type of fraud is on the decline with the card-activation process that most companies use. In 1992, non-receipt fraud represented 16 % of the losses.

It is still possible to get one of these mailed credit card offers and change the address on them to have a credit card that can be activated mailed to a different address.

Identity-Theft Fraud: Accounts for 4% of all losses, and occurs when criminals apply for a card using someone else’ identity and information.