New FICO Data Warns of Growing Fraud Risk in Credit Card Applications

Up to one-third of Americans say that lying on an application for a credit product is “either acceptable in some circumstances or normal behavior,” according to a FICO survey.

Criminals have long wreaked havoc on the credit card industry by stealing or otherwise gaining access to card credentials and using that information to make unauthorized purchases. 

But the FICO survey reveals that credit card issuers may have another bad actor to contend with on the fraud front: People who intend to use a credit card for legal purchases but employ dishonest means to obtain it.

“Consumers are falsifying information in applications to gain credit, not understanding how much these so-called liar loans will stretch their finances and risk leaving them unable to repay or, even facing the consequences of committing fraud,” Adam Davies, Vice President of Product Management at FICO, said in a release announcing the company’s survey.

Some consumers may take a look at their financial situations and come to the conclusion that lying on their credit card application is their best path to securing a new card.

People who make false statements to obtain a credit product may be committing a crime.

Obtaining traditional credit remains a crucial financial milestone for subprime borrowers, and that group is more than 3.6 times more likely than borrowers who have the highest credit scores to express an interest in getting a new credit card, according to a recent PYMNTS report.

But banks are “making it more difficult for lower-income consumers to get cards,” the PYMNTS report highlights.

An applicant for a new credit card may feel they have a good reason to falsify information on their application, but following through on that idea may lead them to undesirable outcomes. 

“Lying on a credit card application is a punishable crime” that can lead to fines and time in prison, according to the law firm of Foley & Wilson.

Credit card fraud is a serious problem in the U.S., and it doesn’t appear to be going away anytime soon. 

The Federal Trade Commission (FTC), a consumer-protection agency, issued a data book earlier this year revealing that credit card fraud is a leading cause of identity theft in the country. According to the FTC’s information, people reported nearly 450,000 cases of credit card fraud in 2024.

From an issuer and merchant perspective, preventing card fraud can be an expensive fight. Worldwide losses from payment card fraud topped $33.8 billion in 2023. That number represents an increase of more than 1% over the prior year’s figures, according to fraud statistics released earlier this year by the Nilson Report.

Tim Tynan, the CEO at Chargeback Gurus, told us industry estimates suggest that up to 70% of chargebacks may be cases of friendly fraud.

“For merchants, that means losing the sale, paying fees and penalties, and dedicating staff to disputes instead of growth,” Tynan said. “Over time, these costs erode margins and weaken operational efficiency.”

The FICO survey shows that people are willing to be dishonest on their credit card applications in some cases, but it also highlights that cardholders expect their card issuer to protect them from fraud that originates elsewhere.

Almost one-third of consumers put fraud protection at the top of their list of priorities they seek from a new account, placing more importance on staving off fraud than customer service or an account’s ease of use.

One way issuers can mitigate fraud is by instilling more stringent identity checks during the application process. 

“While checks during applications may feel frustrating, they are there to protect the customer,” Davies said. 

FICO’s data reveals that three-fourths of people surveyed said they won’t give up on an application because it presents tougher identity checks. And 83% of respondents said facial recognition scans are either a good or excellent security measure to help confirm someone’s identity. 

“Application fraud is no longer just a bank problem — it’s personal,” Davies siad. “Our survey indicates more than 32 million Americans have been victims of identity-based application fraud. This is about trust, and consumers expect banks to earn it.”

Of course, card fraud can strike well after the application process ends. A cardholder may choose to dispute a charge on their credit card statement when they think it’s inaccurate or fraudulent.

Many people who have disputed a charge before know it can be a lengthy and frustrating endeavor.

Chargeflow, a fintech company that offers solutions for resolving disputes, holds that a customer may have to invest a lot of time and effort into disputing a transaction. The process can leave a consumer with a sense of dissatisfaction. 

Casap, a New York-based startup, aims to help credit card issuers make the dispute process easier for cardholders. The company recently raised $25 million in new funding to bolster its AI-powered fraud detection services, according to a report in Forbes.

Banks that partner with Casap can save a significant amount of time managing disputes. Forbes reports that, when someone submits a dispute, Casap’s AI tool can analyze that information and tell a bank’s staff how likely it is that the merchant will shoulder the costs of a refund in that instance.

First-party fraud is on the rise globally, according to LexisNexis Risk Solutions.

The company’s solutions may also help combat the dishonesty FICO unearthed in its survey. 

Information from LexisNexis Risk Solutions shows that first-party fraud is now more common than other types of fraud around the world. The company explains that “first-party fraud includes misrepresenting or giving false personal or account information for financial gain,” including when applying for lending products.

Casap is targeting first-party fraud by analyzing customers’ disputes histories. If the company’s software detects someone with an unusual number of disputes, it can send them an email that details their record with filing disputes and informs them that it’s illegal to knowingly falsify a dispute. 

Casap’s Co-Founder and CEO, Shanthi Shanmugam, told Forbes that emails of this nature “help nudge consumers towards better behavior.”

With up to one-third of Americans saying they believe it’s acceptable to lie on lending applications, the emergence of AI-fueled solutions that combat fraud may encourage more people to stick to the truth the next time they’re in the market for a new credit card.