How to teach your child about credit card fraud
Quick insights
- Teaching financial literacy to your children can help them avoid or more easily spot fraud.
- There are a few ways credit card fraud can occur, such as identity theft, lost or stolen cards and phishing.
- If fraud occurs, inform your child that freezing their account as soon as possible may help prevent additional fraudulent charges from occurring.
If your child has access to your credit cards or bank accounts, teaching them about credit card fraud may be useful. According to the Federal Trade Commission , consumers reported losing more than $12.5 billion to fraud in 2024. That number is a 24% increase over the prior year. Fraud, unfortunately, is not going away.
As consumers and parents, teaching your child how fraud occurs, how to help prevent it and what to do when it occurs can be an important lesson. This is true whether your child is an authorized user on your account or they are 18 or older and have a credit card account of their own.
In this article, we’ll cover how you can impart this information to your child.
What is credit card fraud?
Credit card fraud is the unauthorized use of a credit card to fraudulently obtain money or make a purchase. Fraud can happen if your financial information is stolen or illegally obtained.
As fraudsters become more skilled, credit card technology and security have become more sophisticated. Many cards and digital payment solutions incorporate modern security measures like encryption, tokenization and multi-factor authentication that may help prevent credit card fraud.
Still, fraud can occur. If your child has their own card, is an authorized user on your account or has access to your card through saved online payment options, teaching them about credit card fraud may help them become a savvy card user.
How credit card fraud happens
One of the first things you may want to relay to your child about fraud is how fraud can occur. There are various ways credit card fraud can happen, but some common ones include the following:
Phishing
Phishing is a deceptive practice where fraudsters use fake emails, websites or text messages that appear to be from legitimate institutions. They trick individuals into providing sensitive information such as credit card numbers, account usernames and passwords.
Skimming
Skimming involves the theft of credit card information during an otherwise legitimate transaction. It typically occurs at retail outlets or ATMs. The fraudster installs a small device, known as a skimmer, on the card reader slot. When a credit or debit card is swiped through the skimmer, it captures and saves all the details stored in the card’s magnetic stripe.
Hacking
Hacking in the context of credit card fraud involves unauthorized access to computer systems to steal cardholder data. This can affect a large number of people if the compromised system belongs to a merchant or a financial institution. Hackers might use malware or exploit security vulnerabilities to gain access to a retailer’s customer database. From there, they can extract credit card numbers, expiration dates and CVV codes.
Card Not Present (CNP) fraud
CNP fraud occurs when a transaction is completed without the physical card, typically for online purchases, mail orders or over the phone. CNP fraud occurs when someone illegally obtains your credit card information and then uses it to make purchases that do not require physical verification of the card.
Identity theft
This type of fraud involves a criminal assuming another person’s identity to open accounts or make transactions or purchases. Identity theft can occur through various means, including stealing mail to get pre-approved credit offers, rummaging through trash for discarded billing information or through data breaches where personal information is exposed.
Lost or stolen card fraud
This type of fraud occurs when someone uses a lost or stolen credit card to make unauthorized purchases. If a credit card is lost or stolen and the cardholder fails to report it immediately, the card can be used to make unauthorized purchases until the credit card is locked or closed.
Teaching the basics of personal information security
Teaching children about credit card fraud is more important in today’s digital age, as financial transactions are increasingly cashless. If your child is of the age where they are carrying a credit card or making purchases online, having this conversation may be important.
Here are some helpful tips when teaching your child how to spot and avoid credit card fraud.
Encourage financial literacy
Good fraud detection often starts with financial literacy. Having ongoing conversations about money and credit cards can help build your child’s understanding of responsible financial management.
You may want to clarify that a credit card is not "free money," but a loan that must be repaid, often with interest. Additionally, they should know that credit cards have a limit and that exceeding credit limits or failing to pay a credit card bill on time can have repercussions, like debt and/or damage to their credit score.
Keep credit card info safe
Having access to a credit card should come with an understanding of how to use it safely. Safe usage can include secure storage of any physical card and knowing not to share their credit card number or personal identification number (PIN) with anyone. You may also want to encourage them to regularly check credit card statements for any unauthorized transactions.
Adopt online safety measures
There are several ways to practice online safety, including:
- Use a secure network: Public Wi-Fi networks may not be as secure as private ones, so you may want to avoid using public Wi-Fi when making purchases or sharing personal information online.
- Verify websites: Checking the legitimacy of a website may be a useful step before making an online purchase. A padlock symbol or “https” in the URL may indicate a safer and more secure website.
- Use strong passwords: Encourage the use of strong, unique passwords for online banking or shopping accounts. Store those passwords somewhere safe as well.
- Enable security measures: Enabling modern security practices like two-factor authentication or biometric authentication, where available, can add an extra layer of security to your credit card purchases.
Learn to spot and avoid scams
Learning to spot scams can help prevent fraud before it happens. Your child should know not to click on unsolicited links or respond to requests for personal information from unknown sources.
Reporting credit card fraud
Even with the safest of practices, fraud still can occur. Knowing how to report credit card fraud can be helpful. Should fraud occur, explain to your child that these are some steps to follow:
- Notify your card issuer: Contact your card issuer via the phone number on the back of the card or the issuer website's chat. Tell the customer service representative that you think you were the victim of fraud. The agent may have you confirm recent transactions to be sure any authentic purchases are processed correctly.
- Freeze your account: Ask for your account(s) to be frozen, locked or closed. You may also be able to lock your card via your online account. Consider changing any passwords or PINs you think may have been compromised.
- Contact the credit bureaus: Reach out to the three bureaus (Equifax®, Experian™ or TransUnion®). Confirm your identity and ask for a free fraud alert to be linked to your report. Once the alert is placed, it will become much harder for fraudsters to use your information maliciously.
- Notify the authorities: Fill out an identity theft report with the FTC at IdentityTheft.govOpens overlay. The FTC is a federal law enforcement agency; informing them that you are the victim of fraud could be a helpful step. If you opt to file a police report, bring the Identity Theft Report that you complete for the FTC, and make sure you make a copy for your records.
In conclusion
Credit card fraud can occur in a number of ways. Teaching your child how fraud can occur and how to spot it may help them learn how to deal with or help prevent fraudulent charges and potential damage to their credit.
Encouraging your child to use safe and secure websites and networks, create strong passwords and keep their account details private may help them avoid fraud. When fraud does occur, you may want to recommend that they lock their card and contact the card issuer as soon as possible to help prevent additional fraud from occurring.
