Types of Frauds: Complete List and How to Avoid Them

Last updated 03/20/2024 by

Unfortunately, various types of frauds — everything from debt collection schemes to exploitation of the elderly — are on the rise. In 2018, consumers reported losing $1.48 billion due to fraud. That’s an increase of $406 million from 2017.

Being aware of the different types of fraud can help protect you and your family from scammers who want to steal your hard-earned cash. Subtle scams like fake charities, skimming, and certain types of insurance schemes can be hard to detect. If you don’t know what to look out for, you could fall victim to a scam.

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Types of frauds and how to avoid them

To help you avoid scams, we’ve put together this comprehensive list of the many types of frauds. Plus, find out how these scams work and how to prevent yourself from becoming their next victim.

New account fraud

New account fraud occurs when someone uses your stolen personal information to open new accounts in your name.

The most common example is credit card fraud, but that’s not the only type of new account fraud. Criminals may also use your credentials to take out student loans, car loans, and even mortgages.

Existing account fraud

Fraudsters may also try to make purchases or withdrawals using one of your open, active accounts. This is called “existing account fraud.” This type of scam can affect your credit cards, bank accounts, utility and telephone accounts, loans, and even your insurance.

You can protect yourself by checking your credit report and account statements regularly for suspicious activity. You should also make sure that no one else has access to your physical credit cards or account numbers. Account numbers often appear on bills and checks, so be sure to rip them up before you throw them away.

Account takeovers

Some thieves take things a step further and try to completely take over one or more of your accounts by changing the password(s). Any account with an online login page, including your bank account and credit card account, can be digitally hacked and taken over. The best way to prevent this type of fraud is to create a unique username and password for each account and to use multi-factor authentication.

Advance fee

Advance fee fraud happens when you pay someone a fee in exchange for something valuable, like stock or found money. Alternatively, scammers may offer to find you a loan or credit card in exchange for an advance fee. But once you hand over your money, the scammer disappears, and you receive nothing in return.

How can you protect yourself from these types of frauds? Pass on any opportunities that sound too good to be true. Plus, always research any companies or people that you plan to do business with.

Elderly scams

Senior citizens are often less familiar with modern technology and have large nest eggs at their disposal. Unfortunately, this makes them an attractive target for scammers.

Telemarketing fraud is one of the most common types of scams inflicted upon senior citizens. These scammers offer to sell a phone product and then take off with their victim’s money.

To protect yourself or your loved ones from these types of frauds, avoid giving out personal or financial information over the phone.

Skimming

Hackers can capture your credit card information by installing illegal skimming devices on ATMs, point of sale machines, and fuel pumps. These scammers use many different types of skimmers. They might install a keyboard overlay to track the keys you push, or a pinhole camera to record your keystrokes. There are even devices that go inside the card reader and copy your card’s magnetic stripe.

To protect your financial information, inspect card readers, and keypads before using them. Make sure that the card reader doesn’t look scratched up or damaged. You should also tug on the edges of the keypad to make sure that there isn’t a keyboard overlay. And to guard against hidden pinhole cameras, just cover the keypad with your hands when you’re entering your PIN.

Debt collection fraud

Sometimes scammers will pretend to be debt collectors to get your money or financial information. They may use high-pressure tactics like threatening legal action to scare you into complying.

To protect yourself from this type of scam, never give out personal information over the phone or email. And if you receive a phone call about an unfamiliar debt, request proof. You have the legal right to request a debt validation notice from any real debt collector. Before you make any payments, wait to receive a legitimate debt validation letter in the mail.

Fake charities and lotteries

Both of these fraud types target the elderly, and sadly, they can be hard to spot.

Fake charities use the same methods to collect money as real charities, so they often seem legitimate. To keep yourself from falling prey to them, you’ll have to do your research. Before you donate to a charity, you should verify that it’s an IRS-approved nonprofit using its searchable database. Also, search online for any complaints about the organization.

People running fake lottery scams ask victims to send them money to claim a prize. Once you send them money, they’ll typically harass you for more. Needless to say, you won’t get the promised reward. To protect yourself from this scam, never give anyone money to redeem lottery winnings or prizes.

Insurance fraud

There are many different types of insurance fraud, but the most common example is a premium diversion. In this type of fraud, a self-proclaimed “insurance agent” collects premiums from victims. But instead of sending the money to the underwriter, the scammer takes it for themself.

How can you stay safe? Before you sign up for insurance of any kind, make sure you’re dealing with a legitimate insurance agency or company by contacting your state insurance department.

Investment fraud

Investment fraud encompasses a wide range of scams, including Ponzi schemes (more on these below), advance fee fraud, insider trading, and “pump and dump” schemes. Scammers may try to get you to invest in a stock by promising you guaranteed returns, only to turn around and sell all their shares, driving prices way down.

If anyone tries to sell you on an investment product by promising exaggerated returns, it’s probably a scam. Do your research on investment products and speak to a reputable financial advisor so that you don’t fall prey to investment fraud.

Ponzi schemes

In an attempt to steal your money, some con artists promise incredibly high returns if you invest with them. To make their scheme look legitimate, they’ll pay dividends to the earliest backers using funds received from newer investors. One well-known Ponzi scheme was run by Bernie Madoff, who managed to steal $20 billion from victims before he was caught.

To avoid this type of scam, be wary of investment products that promise exaggerated returns. Always consult with a licensed financial advisor before parting with your cash

Nigerian letter fraud

In this type of scam, someone who claims to be a government official from Nigeria (or elsewhere) sends you a letter offering you an illegal investment opportunity. If you send them money for legal fees, bribes, and taxes, they’ll transfer millions of dollars out of Nigeria and give you a percentage of the profits. Of course, this offer is entirely bogus. And if it were real, it would be highly illegal!

If you get a letter or email like this, don’t respond. Instead, send it to your local FBI office so they can track down the fraudsters.

In addition to knowing about the common types of frauds, here are some best practices that you should follow.

What you can do to prevent fraud

Follow these basic safety rules every day to lower the chances of becoming a victim of fraud.

Make only one trip to your car during shopping excursions – when you’re ready to leave.
Don’t pay with cash. If a thief steals your bag, he can return those items and keep the money, leaving you with no way to recover your loss.
Keep your eyes on your credit card when paying in stores.
Don’t offer your credit card number over the telephone unless you initiate the call.
Log on to your bank’s website and check your bank account activity frequently – at least once or twice a week.
Be mindful of internet addresses. Check the URL every time you log in to your bank’s website to make sure you’re not on a phishing site.
Never agree to deposit money in your bank account, to be “refunded” or forwarded to someone on a later date.
Be suspicious of any inbound emails or phone calls that make threatening claims or demand a same-day payment.
Shred your mail, including junk mail, if your name and address appear on it.
Get your credit report (and your child’s) every year and check it for fraudulent activity.

And what should you do if you are victimized?

Report fraudulent bank account or credit card activity to your bank/credit card issuer immediately.
Report work-at-home scams to the FTC or the FBI’s Internet Crime Complaint Center.
Reports of broker fraud and other investor complaints begin here.
Victims of identity theft can start here.

Protect yourself from becoming a victim of these types of frauds

You can protect yourself from fraud by taking preventative measures and staying informed about new scams. Signing up for an identity theft protection service like LifeLock can prevent fraudsters from getting ahold of your information and damaging your credit. You can also use credit monitoring tools like Credit Sesame and Credit Karma to identify suspicious activity. They’ll send you alerts whenever your credit report changes to help you catch account fraud early. As long as you remain vigilant, you’ll be able to stay safe from all these types of scams.

Jessica Walrack

Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.

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