How credit card security works
We hand over a lot of personal information to obtain credit cards — but is our information and money safe?
It’s understandable to be worried about the safety of your money — and your personal information. From time to time, large companies and businesses lose customer data in major hacks. Credit card fraud is a growing problem — it caused an estimated US$31.26 billion in losses in 2018 alone. In 2010, it cost around US$7.60 billion worldwide, which indicates a massive increase in just eight years. If you’re concerned about your credit card information, you’re not alone. Here’s what you should know about credit card security — and how to keep your information safe.
To get a credit card, you must first submit personal and financial information to a card provider. Your name, phone number, email address and residential address are a given. However you’ll also have to divulge sensitive details about your employment information, total annual income and your Social Insurance Number.
We hand over this information without a second thought – but is it safe once we part with it?
Do credit card companies keep my information safe?
First, the good news: As of yet, there hasn’t been a significant data breach in a major credit card company.
Large financial institutions tend to adopt security measures that are generally more sophisticated and harder for outside threats to compromise. Banks and credit card companies know it’s important for them to safeguard customers’ information and money. To that end, they’re constantly updating their security systems to guard against hacks. However, it’s not impossible for a big financial player to be breached.
Even if your credit card company closely guards your data, there’s the chance that a merchant could lose your credit card information. Your own computer hardware could be hacked, and thieves could steal your credit card information at ATMs.
So it’s not just your bank’s job to keep your information safe — it’s a good idea for you to be vigilant as well.
How to guard against fraud
Credit card fraud doesn’t happen often, but it can be incredibly inconvenient when it strikes. Though financial institutions rarely lose customer data, it’s not out of the question for it to happen.
To protect yourself, implement these safeguards:
- Be selective about who you give information to. Think twice before applying for services from little-known financial institutions. The big players may be more expensive, but they’re better prepared to safeguard your data. Small banks are usually easier targets for hackers because they often have fewer resources.
- Monitor your credit card transactions. Credit card providers have robust fraud departments — but you’re your own best defense. Regularly check your card’s transactions and alert your provider if you see anything fishy. It’s easy to get a replacement credit card, and you’ll typically be protected from fraudulent transactions.
- Be wary of unknown callers and phishing emails. Your financial institution will never call you asking for sensitive information. Also be suspicious of unexpected emails that seem to be from your bank or card provider. They may be sent from thieves attempting to steal your information.
- Check your credit reports. Monitoring your credit reports can help you spot identity theft. You can get your report from a reputable credit reporting website or from one of the two credit bureaus.
- Initiate a “security freeze” with the major credit bureaus. If you set a security freeze, a credit bureau can’t release your credit report without your permission. This can stop identity thieves from opening new financial accounts in your name.
Credit cards are incredibly convenient. The tradeoff for using them, however, is losing your financial anonymity.
This doesn’t mean everyone will know what you spend money on. However, your card providers will: They’re regularly slicing and dicing your card use. They can see where you’ve used your card, and they’re constantly evaluating your creditworthiness based on your spending habits.
For example, if you’ve used your card at a casino or at bail-bond shops, your provider may consider you more likely to be in financial trouble. It could mark you as a riskier borrower who might default on payments. To protect itself, your provider might take preemptive measures, like lowering your credit limit.
Fortunately, your card company isn’t allowed to share your personal information with nonaffiliated third parties. But that doesn’t mean third parties don’t have ways of monitoring your spending. Google, for instance, has ways to monitor credit and debit card transactions through its third-party partnerships.
The implication is clear: If you use credit cards, always assume someone’s monitoring your spending.
Thieves steal credit card information in numerous ways, and one of the most common is by using credit card skimmers.
Skimmers are small, nearly undetectable devices that criminals fit onto credit card machines to read and record your credit card data. For example, a skimmer can be placed over the card slot on an ATM to steal information from a card’s magnetic stripe.
Credit card skimmers have proliferated in recent years, largely because skimmers have gotten more sophisticated. In the past, the bulkiness of a skimmer would give it away. Now they’re small and sleek, and it’s hard to tell when they’re installed.
Credit card skimmers guide
How a skimmer works
First, a thief installs a skimmer onto a credit card machine — like a store credit/debit card terminal or an ATM. Typically, fraudsters will plant skimmers where they’re less likely to be caught doing so — outdoor ATMs and gas pumps are prime targets. They may also install hidden cameras or fake keypads to steal customers’ PINs.
After some time, the thieves will return to collect the skimmer. They’ll sell the information they’ve stolen, or even use it themselves.
Is it safe to use your credit card at an ATM?
Whenever you use an ATM, consider the possibility that a skimmer is installed. ATMs inside of a bank are less likely to have been tampered with. But if you’re using an ATM in an outdoor or isolated area, the machine could be compromised.
If you must use an ATM that’s not monitored by cameras or bank personnel, make it a point to check your credit card transaction history for suspicious activity.
How to protect yourself from credit card skimmers
It’s difficult to detect all skimmers you could come across, and they’re only getting more sophisticated. However, you can minimize the risk of losing your credit card data to these devices.
- Use ATMs attached to banks. These machines are more likely to be monitored, and they’re serviced more often than other ATMs.
- Regularly monitor your credit card transactions. You don’t have to wait for your statement before reviewing your transactions. Just sign in to your online account to see what’s charged to your credit card, whether its been authorized or posted. If you’re vigilant about monitoring your card, you can catch fraud quickly.
- Avoid ATMs that appear to have been tampered with. Don’t use a machine that looks suspicious, rundown or out of place. If buttons are hard to press or graphics are misaligned on the screen, take your card elsewhere.
- Inspect hardware on ATMs. Don’t be afraid to pull at the card slot or test the machine’s keys before your transaction. A skimmer may be glued to a machine, and it could come off if you pull it.
We’ve talked considerably about how credit card information can be stolen. Still, a credit card has built-in defences against fraud – and the financial industry is always developing better tools to combat fraudsters.
Security measures guide
One of the reasons that card companies monitor your spending is to catch fraud.
Fraud costs banks money. To avoid losses, financial institutions develop technologies that automatically detect inconsistencies in customer spending. Uncovering these anomalies is how card companies catch fraud.
There’s more good news: You most likely won’t be liable if your credit card is used fraudulently. Many banks and card providers offer “zero liability” protection for fraud. That means if your card is lost or stolen, you won’t have to pay anything.
Overall, a credit card is an excellent way to pay because it offers great consumer protections against fraud.
Why does your credit card have a chip?
A chip card is relatively secure because it encrypts account information differently each time it’s used. In contrast, data is static on a magstripe card, which means it’s easier for criminals to extract. Skimmers are highly effective at collecting data from magstripes, but they’re less adept at foiling chip cards.
Chip cards have been widely adopted around the world, with many countries, including Canada, using chip-and-PIN cards. These cards require you to enter a personal identification number. Chip-and-PIN cards are considered to be more secure, since there’s no signature to forge.
E-commerce is growing fast, but consumers still have security concerns about making purchases online. The truth of the matter is that a credit card is one of the safest ways to make purchases online. As long as you’re using a trusted website and the online retailer encrypts your data, it’s safe to enter credit card information on the web.
Here are a few precautions you can take to use your credit card safely online:
- Make sure you’re on the right website. It sounds simple, but you can lose information by submitting credit card details in the wrong place. Take a quick glance at your browser’s URL bar to confirm the web address is correct.
- Only input credit card information if the website URL starts with “https.” This means the data you send will be encrypted. If the website URL starts with “http,” cancel your transaction – it’s not secure.
- Use antivirus software on your computer and regularly scan your system. Your credit card data could be stolen by malware like keyloggers and screen recorders. Keep viruses and spyware off of your computer with a reputable antivirus provider like Kaspersky or Norton.
- Don’t place orders on public Wi-Fi. Since public Wi-Fi is unsecured, it’s a prime target for hackers. Only input credit card information online when you’re on your secured home network.
When it comes to fraud, is cash a better option than a credit card? While there are some pros to using cash, credit cards have the edge for safeguarding your money.
Both cards and cash can be stolen, but you’re unlikely to recover cash once it’s gone. On the other hand, you can quickly replace a stolen card. It’s also unlikely that you’ll lose money from a stolen credit card, because you typically won’t have to pay for fraudulent transactions.
For safeguarding your information, cash is the hands-down winner. To get a credit card, you have to submit personal information like your Social Insurance Number and contact details. If your card data is stolen, your information could be sold. Meanwhile, cash transactions can’t be traced back to you.
Overall, credit cards are better at safeguarding your money. Just remember that you’ll give up some privacy to use them.
- Carefully examine your monthly card statement. If you don’t recognize any charges, notify your card provider. This is one of the best ways to protect yourself against fraud.
- Sign your card. Merchants are supposed to match your signature to what you sign on your receipt. Merchants don’t always do this, of course, but signing your card can give you important protections from your card provider, such as zero-liability guarantees.
- Be careful with your receipts. Never leave a receipt behind at an ATM or a store counter, and shred them before tossing.
- Carefully examine your monthly card statement. If you don’t recognize a charge, notify your card provider.
- Only give your credit card number over the phone if you’re the one calling. You may need to input your card number if you’re calling customer support, but your bank will never call asking for your card information.
- Know which phone number to call if you have problems with your card. If your card is lost or stolen, have a phone number on hand to cancel the card immediately. The sooner you cancel, the less time a thief has to use your card.
Consumer privacy is governed by both federal and provincial/territorial laws. These laws, which include the Personal Information Protection and Electronic Documents Act, protect consumers against fraud and privacy abuses. This act provides legislation, ensures compliance, deals with complaints and enforcement, and investigates any businesses breaching privacy laws.
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