Bust-Out Fraud

The fraudster, or a ring of them, opens accounts with real or invented details and behaves like an ideal customer for months. Small balances are repaid on time, which earns higher limits and more products from the same lender or from others. The bust-out follows. Within days every credit line is used up, often through cash advances, transfers to accomplice accounts or purchases that can be resold. Repayments stop and the contact details no longer work. Lenders first see it as ordinary credit loss, so the fraud is often labelled late. Warning signs include sudden jumps in utilisation, many applications in a short period and thin or synthetic identities. Filing the loss under credit risk instead of fraud skews both the lender's provisioning figures and the scorecards later built from that history.

A card issuer notices an account that has repaid a small balance on time for ten months and has had its limit raised three times. In one week the customer draws the full limit through cash advances and transfers to other accounts. The phone number is disconnected and the address proves false. The issuer's analysts find the same device used on several other accounts and reclassify the loss as fraud.