Bust-Out

Updated on April 12, 2024
Reviewed byDheeraj Vaidya, CFA, FRM

Meaning of Bust-Out

A Bust-Out is a fraud where a person gets a credit card, often using a fake identity. Then, the fraudsters acquire more credit lines to scam the credit card company. Once criminals get the credit, they spend or withdraw everything and leave the company with losses.

The detection of this fraud is challenging as fraudsters often try to emulate what a normal client would do. To prevent losses, Credit card companies use software that flags fake IDs.

Key Takeaways

  • Criminals use fake identities to scam credit card companies and get the money that they never intend to pay.
  • Credit card companies lose over $1.5 billion every year due to this kind of fraud, which is equivalent to 1% of their annual revenue.
  • People who want to commit bust-out fraud take their time to increase their credit rating with a bank to maximize their gains before they use their exit strategy.
  • Banks and credit card companies need to constantly evaluate how new clients are using their credit to identify possible threats and avert them as soon as possible.

Impact of Bust-Out Fraud

Due to bust-out fraud, credit card companies lose $1.5 billion every year. This directly impacts the profits of firms offering credit and accounts. The losses amount to 1% of their total revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more.

Apparently, almost none of this money is ever recovered. Obviously, the criminals who use this strategy have no intention of paying. They use their name and do not care about their credit score. Alternatively, they use fake names. If they use fake names, they have no problem getting identified later.

This tactic also impacts customers. Credit card businesses devise several strategies to catch those misusing the system. This makes the process tedious for the honest customers.

Sometimes, honest customers get their cards blocked due to suspicious behavior caused by a false positive. Also, this crime prompts credit card companies to create additional barriers to credit.

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Bust-Out Fraud Rings

In some cases, large criminal rings attack several companies at once. While the damages caused by a single client scamming the business would be irrelevant, these large, coordinated attacks are a major threat.

Recently, a credit card fraud ring was discovered in New York and New Jersey. Eighteen people were charged. According to the police, these criminals cost credit card companies a loss of over $200 million dollars. This string of organized fraud took place between 2003 and 2016.

The criminals used over 25,000 accounts attached to more than 7,000 fake identities to pull off the scam, which was considered one of the largest bust-outs in history. They even used merchant accounts created with fake companies to get more credit.

Bust-out is a huge problem for credit card companies. These companies are constantly striving to identify the profile of fraudsters. To understand how to prevent fraud, let us first see the strategies that people use to commit this crime.

How People Commit Bust Out Fraud?

This kind of fraud is a sophisticated crime that is often committed by crime organizations or individuals. They often create fake profiles and acquire the trust of the company until they are able to access a large pool of credit. The scam ends as soon as they receive money; that is when the fraudsters disappear.

In the following image, you can see how the process works:

bust out fraud

First, the criminal applies for credit, often using a stolen or fake ID. After the person gets approved, they build a good relationship with the bank by emulating the behavior of typical clients: starting with small purchases and asking for more credit as time passes.

In many cases, the fraudsters take more than a year to complete the scam. They apply for credit with several different companies using a fake ID and prepare for the exit phase of the scam.

Whenever they are ready, they use their credit to withdraw money from all the accounts at once. They withdraw as quickly as possible to avoid getting caught and having their funds frozen. After getting the money, the criminals cease all communication with the credit card company.

Measures to Avoid Bust-Out Fraud

People who are trying to pull off a bust-out often try to emulate what a normal client would do at first. So, carefully analyzing the behavior of new clients is the most effective way to find a pattern of unusual activity.

Some common patterns linked to fraud include:

  • Patterns of credit card usage changing significantly around three months prior to fraud execution.
  • The number of accounts linked to the same ID will likely be high. Fraudsters often use seven to fifteen credit cards at once.
  • It takes around fifteen months for criminals to pull off the attack.

By analyzing this data, companies find some people with ill intentions. However, it’s still hard to prevent a lone fraudster. In fact, most scammers try to use their cards as normally as possible. In any case, the main problem occurs when criminal groups start large schemes to exploit credit card companies. Fortunately, these are much more predictable.

Today, most businesses use some kind of software for this task. For instance, the software can detect the creation of synthetic identities. Apparently, fake IDs share a few characteristics, which are tweaked to avoid detection, especially when fraudsters attack using several profiles at once.

By using special software, companies can see how fraud rings reuse data and combine both real and fake information to create profiles. They can also be used to check connections between email, phone, and social media associated with the client to detect any unusual activity.

If a bank detects any suspicious activity, they block the card immediately and ask for the client to present more information. They check the customer in person before moving forward. In most cases, this is enough to make the criminals quit. Criminals terminate ongoing bust-out plans whenever they get flagged by the software.

Frequently Asked Questions (FAQs)

How do you prevent bust-out fraud?

In order to prevent such fraud, credit card companies have to carefully analyze the behaviors of new clients. They try to detect any pattern of unusual activity. Companies use software that flags IDs that could be potentially fake. This software focuses on the parameters that are common between most fake IDs.

How do credit cards companies check for bust-out frauds?

Credit Card companies flag suspicious individuals by checking for signals. All suspicious activities are noted and tracked on a regular basis. This helps them discover bust-out frauds early on. Companies request customers to check their credit card statements on a monthly basis. Be it online or in the mail. Customers are recommended to report any unexpected transactions or cash advances.

What is a bust-out example?

Criminals use stolen or counterfeited documents to obtain a credit card in the name of a legitimate consumer. Alternatively, fraudsters obtain credentials by impersonating a customer and utilizing a similar forged paper trail to take control of a legal credit card account. Fraudsters use those credentials to obtain a good credit score. Finally, they withdraw a lot of money suddenly and disappear without paying back the loan.

This has been a guide to Bust-Out and its meaning. Here we discuss how people commit bust-out fraud along with its impact and measures to prevent it. You may learn more about financing from the following articles –

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