What Is Fraud?

What Is Fraud?

Fraud is the intentional use of deception for personal gain. It’s a type of crime that can include almost any activity in which someone knowingly misrepresents or conceals meaningful information and harms someone else. With financial fraud, the fraudster is hoping to gain money from the deception.

You can become a victim of financial fraud without doing anything. For example, someone might break into your bank account in the middle of the night and transfer funds.

A scam is a type of fraud that involves your active participation. For instance, someone is committing fraud and scamming you when they falsely claim to be raising money for a charity and trick you into donating.

Learn more >> The Latest Scams You Need to Be Aware Of

Types of Consumer Fraud

People often categorize financial frauds and scams based on what happens or a key characteristic of how the fraud works. Common examples of financial fraud include:

• Account takeover fraud: This happens when someone breaks into one of your accounts and takes something of value, such as money from your bank account or payment app. Account takeover fraud can also affect accounts that have something else of value, such as store credit, miles or points.
• New account fraud: This is when someone uses your personal information to apply for a new account in your name. For example, they might open a new credit card in your name, use the card to make large purchases and leave the bill unpaid.

Most financial frauds are also scams because the victim is tricked into sharing their personal or financial information, or into sending money to the fraudster. Some of the common financial scams include:

• Imposter scams: Fraudsters pretend to be someone else to trick you into sharing information or sending them money. Often, they’ll pretend to be someone who has authority or has something you want, such as a police officer, IRS agent, representative from a popular online store or delivery person.
• Employment scams: Fraudsters post listings for fake jobs and collect applicants’ personal information. They might ask you to buy training material or supplies—but they actually take your money and disappear.
• Online shopping scams: Fraudsters create websites and sell products or services with no intention of delivering what they sell. Or, they use fraudulent payment information to purchase the product and then send it to you. Sometimes, they advertise these fake ecommerce stores on social media.
• Sweepstake and prize scams: The scammers send you a notice that you’ve won a prize or lottery. However, you’re asked to pay a fee to claim your winnings.
• Investment scams: Investment scams can take many forms, such as when fraudsters try to trick you into investing in cryptocurrency, real estate, gold, art, stocks or bonds that don’t have much actual value. Or, they may try to get you to pay for worthless training programs or advice.
• Romance scams: Scammers often steal or create a fake identity and contact victims by text or online to start a friendship or romantic relationship. After gaining the victim’s trust—sometimes over weeks or months—they ask the victim to send them money. Or, they share an investment “tip” with the victim.
• Overpayment scams: The fraudster sends you a check that’s for more than they owe and asks you to send back the difference. It seems like the check clears when you deposit it at your bank, but then the bank reverses the money when they discover the fraud. By that point, you might not be able to get your money back.

The categories can also overlap, and sometimes one type of scam fits within another. For example, a romance scam involves the scammer pretending to be a stranger—an imposter. Or, scammers might use an overpayment to get money from you as part of a prize or employment scam.

Now that you’re familiar with the types of fraud, take a look at the most common types of fraud and the median amount consumers lost in 2023.

Source: Federal Trade Commission

Learn more >> The Most Common Types of Fraud

How to Avoid Fraud

There are many types of scams and financial fraud, and fraudsters are always trying something new and using technology, like AI, to add a twist to an old scheme. Although there’s no proven method for always staying safe, here are a few tips that can protect you from many types of fraud.

• Be on guard when people contact you. An unexpected call, text, direct message or email might be the start of a scam. Even if the message is scary or exciting, it’s safer to look up the organization’s information on your own and contact it directly instead of responding to the person contacting you.
• Don’t fall for something that seems too good to be true. Whether it’s a deeply discounted sale or an unexpected winning lottery ticket, if something seems too good to be true, it could be part of a scam.
• Ignore overpayments. If someone says they accidentally sent you too much money, it could be a scam. Tell them to cancel the check or reverse the transaction.
• Avoid using payment methods that are difficult to reverse. Scammers might prefer that you pay with a gift card, wire transfer, money order, cryptocurrency or peer-to-peer transfer because it can be difficult to get your money back once it’s gone.
• Add fraud alerts to your credit reports. You have the right to add a fraud alert to your credit reports for free. The alerts ask creditors to verify your identity or contact you when someone applies for credit with your information.
• Freeze your credit. You also have the right to add a security freeze, also called a credit freeze, to your credit reports for free. Freezing your credit limits access to your credit reports, which can keep anyone (including you) from opening a new credit account. You can also unfreeze, or thaw, your credit reports whenever you want for free.
• Use strong and unique passwords. Create a new password for each of your financial accounts, and make sure it’s not correlated to your other passwords. You can use a password manager to simplify the process.
• Enable multifactor authentication. Multifactor authentication (MFA) can help keep a fraudster out of your account even if they’re able to guess your username and password.

Learn more >> How to Avoid Financial Scams

What to Do if You Are a Victim of Fraud

If you’ve already experienced financial fraud, you can take several steps that might help you recoup losses and protect other potential victims.

1. Report the fraud to the authorities. File a police report and report the fraud to the FTC on ReportFraud.ftc.gov. The FTC will give you a personalized list of next steps to take based on the type of fraud.
2. Report the fraud to other related companies. Also report the fraud to any company that was involved, such as the bank or credit card issuer where the fraudster opened a new account, or to the merchant that the scammer impersonated when they created a fake online store.
3. Scan your devices for malware. Fraudsters sometimes get access to your accounts after installing malware on one of your devices. You could run an antivirus scan and install the latest security updates to help keep yourself secure.
4. Update your passwords. If the fraud involved your online accounts, change your passwords to make sure the fraudster can’t get back in.
5. Add a fraud alert or credit freeze to your credit reports. If you haven’t done so already, add one of these security measures to your credit files.

Frequently Asked Questions

• What Is Identity Theft?

  Identity theft is when someone steals your personal information and uses it to trick other people or companies. Sometimes, different people or organizations commit the identity theft and identity fraud. For example, one group might break into a company’s system—in a data breach—and then sell the stolen data to groups or people who use it to commit fraud.

  You can search to see if your information was leaked in a data breach on haveibeenpwned.com. Experian also offers a free, one-time dark web scan that you can use to see if your Social Security number, email or phone number could be available to others on the dark web.

• What’s the Difference Between Fraud and Scams?

  Scams are a type of fraud, but not every fraud is a scam. Generally, fraud is when someone uses deception for personal gain with or without someone else’s involvement. As a type of fraud, scams involve tricking someone, but they also rely on the victim’s participation.

  For example, someone might steal your identity and apply for credit in your name without you knowing what happened. However, if someone is scamming you, they’re trying to trick you into willingly sharing your information or sending them money.

• What Is Tax Fraud?

  Tax fraud is when a person or business intentionally misrepresents facts to evade taxes that they think they owe. For example, if someone earns cash from a job or side gig and doesn’t include the income on their tax return. Or, if someone doesn’t file a tax return when they should.

• Does Being a Victim of Fraud Affect Your Credit?

  Some types of fraud can affect your credit. For example, if someone opens a credit account in your name, the account could be reported to the credit bureaus and end up in your credit report. You have the right to dispute items in your credit report. If you see information that’s the result of fraud in your report, you can file a police report for identity theft and ask to have the fraud-related items removed.

  Being the victim of a scam can also have an indirect impact on your credit. If you’re tricked into sending money to someone else and don’t have enough funds left over for your bills, you could fall behind and the late or missed payments could hurt your credit.

Monitor Your Accounts and Credit

You can check your Experian credit report for signs of fraud, and you’ll also receive free credit monitoring with real-time alerts about important changes. These can help you spot signs of credit fraud, such as when someone applies for a new credit account in your name and there’s a new hard inquiry on your credit report.

You could also look into Experian’s paid premium memberships, which monitor additional databases for changes and can send you financial account takeover alerts, social network monitoring alerts and identity validation alerts. Members also have access to fraud resolution support and receive a policy for up to $1 million in identity theft insurance.