How to Win a Fraud Dispute With Your Credit Card Company

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Credit cards are one of the most secure methods of payment, but they're not perfect. In fact, your cards are a huge target for hackers and other criminals who try to steal your account information to make fraudulent charges.

Thankfully, you are protected by the Fair Credit Billing Act, which allows you to dispute a charge on your credit card and temporarily withhold payment on that charge while the card issuer investigates. During that time, the issuer can't legally charge you interest on that charge or report your payment as late to the credit bureaus. (You do, however, still have to pay for all undisputed charges on your bill by the due date.)

If a stranger uses your card fraudulently, this law limits your liability to $50, and if the thief uses your card online or over the phone, you aren't liable for anything. In any case, all of the major payment networks offer a zero liability guarantee, meaning you likely won't be responsible for even $50. To enjoy the protection of this powerful law, however, you have to identify fraudulent charges and dispute them with your card issuers.

Identifying fraudulent charges

These days, your card issuer often spots fraudulent charges before the cardholder does. When that happens, they'll usually call you to alert you, and issue a new card immediately while closing the old account to prevent any further fraudulent charges.

However, sometimes the card company doesn't catch a fraudulent charge. That's why it's important that you scrutinize every transaction on your credit card statement each month. Sometimes a fraudster may charge small amounts — maybe a few cents — to test out whether they can use your account for larger transactions. Beware of charges that are less than a few dollars.

Unfortunately, your statement will not offer you much detail about a charge other than the date, the merchant name, and the amount. To make matters worse, some charges may appear with a merchant name that differs from the name of the company that's advertised.

When you see an unfamiliar charge on your account, first spend a moment researching the name of the merchant. A quick internet search may reveal that it wasn't a fraudulent charge, it was just processed under a merchant name that's different from the one you remember doing business with.

Also check to see that the charge isn't something you inadvertently authorized — maybe you signed up for a free trial subscription and forgot to cancel it before it automatically turned into a paid service. If the merchant's terms and conditions spell out that this was going to happen, you'll have to take it up with the merchant. It's not considered fraud by the card companies.

Finally, a charge is not considered fraudulent if it benefits you. For instance, if your spouse used your card without your knowledge to pay the phone bill or to buy groceries for you both, that's not considered fraud.

How to dispute a fraudulent charge

Once you've done a little bit of investigation and concluded that a charge is likely to be fraudulent, your next step is to notify your card issuer. One way is to call the number on the back of your card and ask to speak to the fraud department. Keep notes about when you called, who you spoke to, and what was discussed.

Many credit card issuers also provide a way to dispute a fraudulent charge online. In that case, you should take a screenshot of your confirmation page or print it.

Once you've disputed the charge, your card issuer will likely give you a temporary credit that will become permanent if the fraud team's investigation confirms that fraud has occurred. You'll also usually be sent a new credit card and have the old one closed.

Winning the dispute

Just because you've received a temporary credit to your account, it doesn't guarantee that you will eventually win the dispute. As part of its investigation, the credit card company will contact both you and the merchant to ask for both sides of the story. For example, if you claim a charge was unauthorized, the merchant could respond with a signed receipt showing your authorization, or a recording of a telephone call where you approved the charge. And if you claim that you never received the goods you ordered, the merchant could offer a tracking number that proves delivery.

When a merchant is actively fighting your dispute, you must provide proof supporting your claim. If you are claiming a charge was never authorized, the burden of proof is on the merchant to show that you gave it permission to charge your credit card.

Preventing fraud in the future

If you found an unauthorized charge from a company that you've never done business with, then it's likely that your account information has been compromised in some way. The best way to prevent further unauthorized charges is to report your card as stolen and have it replaced. There is no charge to cardholders to take this step.

You will also want to monitor your credit to spot other possible fraudulent charges. Regularly viewing your credit score for significant changes is one way to spot potential problems early. Credit cards that offer free credit scores make it easy to stay on top of changes.

You can also request free copies of your credit reports from the three major consumer credit bureaus through AnnualCreditReport.com. Finally, you can request a credit freeze from the major consumer credit bureaus that will prevent anyone from opening a new account in your name. (See also: How to Protect Your Credit After the Equifax Breach)

The good news is, credit cards come with robust legal protections against fraudulent charges and other billing errors. But you must do your part to use this law. By identifying and reporting fraudulent charges, and providing documentation supporting your claims, you can win credit card disputes.

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